Buying A New Auto During A Credit Crunch

June 22, 2008

With foreclosures on the rise, wages on the nose dive, and lenders tightening their practices, consumers are feeling the pinch. This pinch is not centered on home mortgages and home equity loans, in fact every part of the economy is feeling the negative impact of the current economic state; this includes the auto industry.

Many auto makers are finding it increasingly hard to find a market for many of their cars especially the larger SUVs and trucks. This is due to not only the economic slowdown but to the rising gas prices as well. Of course, for the few that are in the market for a new vehicle, these conditions are not necessarily a bad thing.

In an effort to boost sagging sales, dealers are offering great deals, but only to those consumers with sparkling credit scores.

Auto loan payments are seeing an increase in defaults, sometimes at record highs causing many economist and industry experts to draw comparisons between the sub prime mortgage collapse and the state of the auto industry. Sub prime loans are believed to have started the housing mess and many fear that the same may happen to the automobile industry. A sub prime loan is one that is given to a consumer with a low credit score. Before the credit crunch, lenders of all types gave sup prime loans to consumers rather recklessly.

Currently, borrowers are finding it harder and harder to find loans and lines of credit. Of course, those with perfect credit scores are reaping the benefits of this as lenders are desperate to attract anyone that will be able to repay loans.

Those that have a good credit score should take advantage of this trend to purchase a new car. The risk of the auto industry collapsing like the housing market is minimal and represents little risk for those able to purchase an auto loan.

So, if you plan to buy a car in this time of economic troubles, it will be prudent to do some planning before rushing out to a dealer.

The first and most obvious bit of advice is to boost that credit score the best you can. Pay off al delinquent bills and start paying those bills on time. This may take a few months so be ready to commit to a plan. You will need to figure out what you can afford. A great way to do this is by putting aside 300 or 400 dollars aside each month for three months and see if you can live comfortably without that dough.

If you can live, eat, and pay bills without that money then chances are, you will be able to afford an auto loan. If you managed to get your credit score to an impressive state then you may find that dealerships are clambering to give you the best rate and deal. If you are a low risk to lenders then do not be surprised by their eagerness to grant you an auto loan. After all, they want you to drive off the lot in a new car. This gives you some bartering power, so make sure you use it. Compare and contrast rates and prices and use that knowledge to your advantage.

While you may feel uneasy about making any kind of purchases during such a time, especially large ones, it may be a good idea especially if you can qualify for a great deal on loans. For those with a less the great credit score, it is advisable to hold off on buying a car, but if you can afford, then go right ahead and enjoy the ride.