This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

US Auto Sales on Road to Next Subprime Bubble

NEW YORK ( BankingMyWay) -- Have you been holding off a new-car purchase because you think lenders will turn you down? Well, take heart: Lenders are getting easier on borrowers with less-than-perfect credit.

Experian Automotive, a unit of Experian, the credit-rating firm, reported Tuesday that "loans in the nonprime, subprime and deep-subprime risk tiers accounted for more than one in four new-vehicle loans in the second quarter of 2012." That was a 14% increase from the same period a year earlier, and it actually exceeded the rate in the second quarter of 2007, before the financial crisis made lenders tighten their standards.

"Because the overall lending environment has improved, lenders are making loans available to a wider range of customers," said Melinda Zabritski, director of automotive credit for Experian Automotive. "This is good for manufacturers and dealers, as it allows them to sell more vehicles."

Experian said the average new-vehicle buyer borrowed $25,714 in the second quarter, the average used-car borrower $17,433. Both figures were several hundred dollars higher than a year earlier.

Okay, so loans are easier to get. Is it a good time to buy a new car?

For automobile-finance purists, that's a trick question, because they believe it's never a good time to purchase a new car, because used cars are a better buy. Those figures on average loan amounts underscore the obvious: Used cars are cheaper.

Of course, they're used, which means they won't last as long. But today's cars can last an awfully long time. Ten or 15 years of relatively trouble-free service is not uncommon, and that means 150,000 miles, maybe 200,000 or more.

If you buy a three-year-old vehicle, it could be only 20% through its useful life but might sell for 30 or 40% less than when new. That's because the depreciation rate , or pace at which a vehicle loses value, is fastest in the first few years.

Before getting a new car, a buyer with damaged credit should also think of the big picture. Even if a loan is available, the interest rate is likely to be higher than for buyers with better credit, perhaps as much as 7% or 8% higher. That dramatically increases interest charges, especially for borrowers who take out loans for five, six or seven years.

Finally, taking on a new debt can slow the process of repairing your credit, since all debt is considered a risk. The longer you have a low credit rating, the longer you'll pay higher-than-necessary interest rates for credit cards, a mortgage or other loan, and the more likely your loan applications will be turned down.

So, if you have damaged credit, buying a new car should not be on top of the priority list. Keep the old clunker going until your credit is fixed, or buy a good used car, paying cash if you can.

--By Jeff Brown

RELATED STORIES:



Follow TheStreet on Twitter and become a fan on Facebook.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs