Higher Interest Rates for Poor Credit Car Buyers

With Federal Reserve relentlessly pushing up interest rates, it is a given that more buyers will now show interest towards used cars rather than glistening new vehicle models. This is as these buyers in all probability will not meet the eligibility criteria for a new car loan.

Wants and reality

According to Jessica Caldwell of Edmunds.com, automobile manufacturers want higher rates. However, the companies compete fiercely for sales in a shrinking American market. Even with people who enjoy a strong credit, a small rise in monthly payments will have a marked impact- even if it is a psychological one. To give an example, a monthly lease of $199 goes over $200, and a $295 goes north to surpass $300.

The Federal Reserve raised rates by a quarter percent first in December 2017. This was the third hike in 2017. The government entity has signaled that it will raise rates of interest for a minimum of three times in 2018. The rate hike has not hit everyone hard. For those with an excellent credit, the change was minimal. However, for those with scores below or in the region of 600, the impact was a painful one. They are now forced to buy used cars- and many are buying them even if they do not want to.

Used cars sales up

Used car dealers have confirmed the trend. Sales of pre-owned cars have already increased, along with a deterioration of new car sales. Many car dealers are bracing for a difficult 2018. The only stable buyers are people with an excellent credit. They are not much affected by the changes. Buyers with scores upwards of 660 have felt only a slight pinch. An increase of a quarter point comes to around $4 every month in these cases. The four percent rates still exist in such rarefied atmospheres. However, this will change for the worse in the coming months.

According to Experian, about 20 percent of new car sales come from buyers having credit scores of 600 or more. About 61 percent of buyers come from the Prime credit category. Rest comes in non-prime, a middle category.  Buyers are now moving towards extended loans and lower monthly payments. As per Experian, the average is now 69 months. The median loan for buying a vehicle at present is $30,329. This is $291 more compared to 2017. A few dealers hold the view that potential buyers suffering from weaker credit will be totally pushed out of the market.

Leave a Comment