For the most part, offering auto loans is a relatively good business idea for financial institutions. Delinquency rates are much smaller than other loans, and a car can be repossessed by a bank much more easily than a house if a borrower is behind on payments. Because of these reasons, many banks are entering or expanding this industry, eager to make profits from this low-risk service. However, with so much competition, some lenders are providing more options to borrowers, such as longer terms and lower rates. This could, potentially, create the risk that lenders tried to avoid with this market.
A Wall Street Journal article found that even though car prices have increased in the past four years, the average monthly payment has actually declined. With longer terms – some reaching as long as 97 months – and lower interest rates, more consumers are able to afford new and expensive cars than in the past. More lenders are also lending to subprime borrowers.
On some levels this can be good, because higher quality cars help borrowers stay in their car for longer, reducing the need to take out a loan later. However, with such a long loan term, it takes longer for a borrower to own more of the car than they owe.
"Having 'negative equity' or being 'upside down' in a car makes it harder to trade or sell the vehicle if the owner can't make payments," the article wrote.
Other tools can also help lenders compete, though, instead of lending to more risky borrowers. With credit and risk management tools, financial institutions can see more information regarding a borrower's past and make stronger decisions about lending. With more efficient lending tools, banks can remain profitable – helping keep the auto industry's delinquency rate at record lows.
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For the most part, offering auto loans is a relatively good business idea for financial institutions. Delinquency rates are much smaller than other loans, and a car can be repossessed by a bank much more easily than a house if a borrower is behind on payments. Because of these reasons, many banks are entering or expanding this industry, eager to make profits from this low-risk service. However, with so much competition, some lenders are providing more options to borrowers, such as longer terms and lower rates. This could, potentially, create the risk that lenders tried to avoid with this market.
A Wall Street Journal article found that even though car prices have increased in the past four years, the average monthly payment has actually declined. With longer terms – some reaching as long as 97 months – and lower interest rates, more consumers are able to afford new and expensive cars than in the past. More lenders are also lending to subprime borrowers.
On some levels this can be good, because higher quality cars help borrowers stay in their car for longer, reducing the need to take out a loan later. However, with such a long loan term, it takes longer for a borrower to own more of the car than they owe.
"Having 'negative equity' or being 'upside down' in a car makes it harder to trade or sell the vehicle if the owner can't make payments," the article wrote.
Other tools can also help lenders compete, though, instead of lending to more risky borrowers. With credit and risk management tools, financial institutions can see more information regarding a borrower's past and make stronger decisions about lending. With more efficient lending tools, banks can remain profitable – helping keep the auto industry's delinquency rate at record lows.
[:es]For the most part, offering auto loans is a relatively good business idea for financial institutions. Delinquency rates are much smaller than other loans, and a car can be repossessed by a bank much more easily than a house if a borrower is behind on payments. Because of these reasons, many banks are entering or expanding this industry, eager to make profits from this low-risk service. However, with so much competition, some lenders are providing more options to borrowers, such as longer terms and lower rates. This could, potentially, create the risk that lenders tried to avoid with this market.
A Wall Street Journal article found that even though car prices have increased in the past four years, the average monthly payment has actually declined. With longer terms – some reaching as long as 97 months – and lower interest rates, more consumers are able to afford new and expensive cars than in the past. More lenders are also lending to subprime borrowers.
On some levels this can be good, because higher quality cars help borrowers stay in their car for longer, reducing the need to take out a loan later. However, with such a long loan term, it takes longer for a borrower to own more of the car than they owe.
"Having 'negative equity' or being 'upside down' in a car makes it harder to trade or sell the vehicle if the owner can't make payments," the article wrote.
Other tools can also help lenders compete, though, instead of lending to more risky borrowers. With credit and risk management tools, financial institutions can see more information regarding a borrower's past and make stronger decisions about lending. With more efficient lending tools, banks can remain profitable – helping keep the auto industry's delinquency rate at record lows.
[:it]For the most part, offering auto loans is a relatively good business idea for financial institutions. Delinquency rates are much smaller than other loans, and a car can be repossessed by a bank much more easily than a house if a borrower is behind on payments. Because of these reasons, many banks are entering or expanding this industry, eager to make profits from this low-risk service. However, with so much competition, some lenders are providing more options to borrowers, such as longer terms and lower rates. This could, potentially, create the risk that lenders tried to avoid with this market.
A Wall Street Journal article found that even though car prices have increased in the past four years, the average monthly payment has actually declined. With longer terms – some reaching as long as 97 months – and lower interest rates, more consumers are able to afford new and expensive cars than in the past. More lenders are also lending to subprime borrowers.
On some levels this can be good, because higher quality cars help borrowers stay in their car for longer, reducing the need to take out a loan later. However, with such a long loan term, it takes longer for a borrower to own more of the car than they owe.
"Having 'negative equity' or being 'upside down' in a car makes it harder to trade or sell the vehicle if the owner can't make payments," the article wrote.
Other tools can also help lenders compete, though, instead of lending to more risky borrowers. With credit and risk management tools, financial institutions can see more information regarding a borrower's past and make stronger decisions about lending. With more efficient lending tools, banks can remain profitable – helping keep the auto industry's delinquency rate at record lows.
[:tr]For the most part, offering auto loans is a relatively good business idea for financial institutions. Delinquency rates are much smaller than other loans, and a car can be repossessed by a bank much more easily than a house if a borrower is behind on payments. Because of these reasons, many banks are entering or expanding this industry, eager to make profits from this low-risk service. However, with so much competition, some lenders are providing more options to borrowers, such as longer terms and lower rates. This could, potentially, create the risk that lenders tried to avoid with this market.
A Wall Street Journal article found that even though car prices have increased in the past four years, the average monthly payment has actually declined. With longer terms – some reaching as long as 97 months – and lower interest rates, more consumers are able to afford new and expensive cars than in the past. More lenders are also lending to subprime borrowers.
On some levels this can be good, because higher quality cars help borrowers stay in their car for longer, reducing the need to take out a loan later. However, with such a long loan term, it takes longer for a borrower to own more of the car than they owe.
"Having 'negative equity' or being 'upside down' in a car makes it harder to trade or sell the vehicle if the owner can't make payments," the article wrote.
Other tools can also help lenders compete, though, instead of lending to more risky borrowers. With credit and risk management tools, financial institutions can see more information regarding a borrower's past and make stronger decisions abou
t lending. With more efficient lending tools, banks can remain profitable – helping keep the auto industry's delinquency rate at record lows.
