Here’s a look at some recent auto loan programs:
Chrysler
Program: Summer Clearance, Aug. 4-31
Details: 0% financing for up to 72 months through GMAC Financial Services on select 2009 model vehicles, or up to $4,500 Consumer Cash to all consumers, even if they don’t have a trade-in. The program replaces Chrysler’s “Double CA$H for Your Old Car” incentive, which debuted July 22 and offered up to $9,000 toward the purchase of a new Chrysler, Jeep, or Dodge vehicle.
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Overseas, Bangalore, India-based Canara Bank has a new program, as well.
Details: For loans made after Aug. 1, the rate is 8.5% during the first six months and 9.5% during the next 24 months. For loans with 36-to-60-month terms, the rate is 10%. The interest rate applied to loans longer than 60 months is 10.5%.
Thanks, everyone, for your input. It’s been really enlightening.
I just wanted to comment on a few things that have been mentioned so far:
My reason for proposing that the credit scores are “artificially” low is because these borrowers we’re talking about are not typical nonprime or subprime borrowers. In other words, they’ve made their monthly payments perfectly for years (or even decades), and they will return to that perfect payment record as soon as their jobs are restored. At this point, though, the economy is in such a severe funk, that even people who *have* saved might not be able to avoid repossession. For people who have saved, they might only have enough of a cushion to pay all their monthly bills — mortgage, car, utilities, groceries, etc. — for three months, not the six or nine they might be out of work these days. And what I’m saying is that once that job (or a decently comparable one) is restored, the credit score will not reflect that. It would be a 550 (for example), when in reality it should be much closer to the original 720. In other words, the job loss and its resulting delinquency will scar the consumers’ credit standing unjustifiably —because as soon as the job is restored, so will the on-time monthly payments.
Another issue: As I mentioned in the original post, I don’t think that we can revert back to manual underwriting on any kind of large scale. But certainly those lenders who manually review every single application will stand to gain from this crop of consumers that has been labeled 550s and will ultimately pay like 720s.
One of the things I’m getting at is whether we’ll see lenders refine their methodology for reviewing credit scores or weighting them. Will they pay more attention to consumers’ savings? Or maybe, as John Paulsen suggested, we’ll see lenders offer some kind of unemployment insurance…