As the national -- and then global -- financial crisis developed during 2008, news reports warned that credit for car purchases was growing increasingly difficult to find. As a result, many otherwise ready, willing and able car buyers continue to postpone their purchase until they get word of improving credit conditions. At that point, however, it may be too late to take advantage of the great deals currently being offered in light of fewer buyers.
Though the crisis is quite real, the warnings are often exaggerated. After all, lenders are in the business of lending and dealers are in the business of selling. Both parties want your money, and they're working extra hard to get it. There's more new-car credit available out there than is being tapped.
As always, a better credit score generally means more options and better rates/terms. If you don't already know your credit score (often called FICO score), find out now through one of the online services that provide this information. Armed with that figure, you'll know what to expect when applying for a loan.
In the fall of 2008, GMAC (the financing arm of General Motors) decided to limit car loans to applicants with FICO scores above 700. In the last days of the year it lowered the cutoff to 620, opening the door for more buyers.
But "captive" lenders -- those affiliated with an automaker -- aren't the only source for new-car financing. Far from it. Dealers have always been able to call upon a variety of banks and other lending institutions. Today, they're simply having to work harder to find financing for their customers.
Shoppers have long been advised to secure credit before visiting a dealership. That's still sound advice, when possible. Credit unions issue about 20 percent of car loans and tend to be less restrictive, considering applicants as members.
If you have a relationship with a local bank, or have borrowed from a particular lender before, start there. Credit scores are crucial, but personal relationships can make a real difference in convincing a reluctant lender of your dependability.
Although the financial crisis won't end soon, credit restrictions are likely to ease, if gradually. The cutoff point between acceptance and rejection is sure to shift. A credit score that fails to secure a loan today may earn a different outcome tomorrow.
Naturally, you shouldn't accept financing offered by anyone until you understand the terms completely, and consider them fair. If not, try again. Dealers who want your business know they must work diligently to get those loans rolling.
Despite the dire warnings, this may prove the best time in recent memory to buy a new car.