If you have been dreaming of parking a new vehicle in your garage and have been searching online for the latest car reviews and news, youï¿½ve likely read that the world of auto lending is experiencing a big boom, with banks and credit unions responsible for an increasingly large portion of auto loans.
ï¿½Americans bought more new cars in 2015 than ever before,ï¿½ stated Chris Isidore in an article for CNNMoney published in Jan. 2016. ï¿½Hereï¿½s why: low gas prices, easy credit, strong job growth and pent-up demand from years of depressed sales.ï¿½
Thatï¿½s great news for people who have been waiting for the right time to start taking some test drives. Itï¿½s also good news for financial institutions, which have been experiencing an upward trend in lending as they continue to claim a larger share of the auto loan market in recent years.
Car buyers are finding that they donï¿½t have to simply accept the dealershipï¿½s loan offer when purchasing a new car, and in many cases they can find favorable loans with their financial institution, which they already know and trust.
ï¿½The average five-year loan for a new auto from a [small financial institution] has an interest rate of 2.58 percent, compared to 3.87 percent at a traditional bank, according to Informa Research Services, a California market research firm,ï¿½ states Boston Globe Columnist Deirdre Fernandes. ï¿½Those rates ï¿½ as well as better rates for other loans and savings products ï¿½ have helped ï¿½ attract customers and expand their market share.ï¿½
While this upward swing in the auto market certainly seems like great news, some economists and journalists are taking a less optimistic outlook when considering this trend. Many feel that the boom in auto lending and car buying is reminiscent of the boom in real estate that came before the recession, especially since subprime lending takes up a large portion of the new loans.
Many financial experts, however, feel that there isnï¿½t cause to worry about the uptick in subprime auto lending. One of the main reasons for this optimism is the fact that foreclosed homes create a much longer and larger impact on the local and national economy than delinquent car loans, even in cases where vehicles need to be repossessed.
ï¿½A surge in repossessed cars may end up increasing the number of used cars for sale, but other than that, donï¿½t expect to see the huge write-offs by mortgage lenders that caused so much harm to the financial system and broader economy,ï¿½ states Barry Ritholz, a Bloomberg View columnist in a March 2016 article. ï¿½So, no, subprime auto loans donï¿½t have the makings of the next subprime mortgage crisis.ï¿½
So donï¿½t let sensational headlines about an impending financial crisis dampen your spirits. If you are in the market for a new car, now is a great time to talk to your financial institution about your loan prospects, and your financial institution should always be your first stop in the car-buying process if you want the best deal.
So start dreaming about exterior paint colors and all the features you want in your new vehicle, and make plans to speak with your local financial institution soon.