Car Financing
Posted 7/11/2012 by leeann

Auto Loans, Next Bubble to Burst?

Posted: Jul 09, 2012 4:54 PM CDT
Updated: Jul 09, 2012 10:27 PM CDT

By Lisa Martone

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 DES MOINES-- The amount of money lenders are giving people for auto loans is at an all time high. Could this be a good indicator for a growing economy or a scary sign of what's to come?

"Well I'm kind of looking forward, if we are going to get big snow that would be a really good car, said Ken Kalahar as he was shopping at Willis Auto Campus in Des Moines Monday morning.

Kalahar is finally ready to pull the trigger on a new car. He's like many others lately.

"I think consumer confidence is there," Rich Willis, owner of Willis Auto Campus said. "Consumer confidence, especially in the Midwest, is certainly there."

The Willis Auto Campus is certainly feeling that confidence. Their first quarter this year has been better than they could have imagined. They aren't the only ones.

National numbers from Equifax show in the first quarter new bank loans for cars have totaled more than $47 billion, the highest we have seen at any point the past seven years.

"Interest rates are so low that it is very inexpensive for anyone to borrow to buy an automobile," Willis said. "So people are taking advantage of that."

But is this a good thing? Some say it's risky, and very reminiscent of the housing boom.

"I think in some parts we are pushing the envelope a little bit, because the employment and the economy are still extremely shaky," Tom Coates of Consumer Credit of Des Moines said.

Coates says car loan trouble is the second reason, behind credit card debt, that people come to see him.

"Today the average person financing a car for five, six and in some cases seven years with very little money down, is actually buying more car than it appears," he explained.  

Coates says, even if you are taking out a lengthy loan, if you are unable to swing what the payments would be for a 36 month loan, you probably can't afford the loan.

"Take advantage of the low interest rates for sure, but if you can not pay in what is the equivalent of a 36 month loan, than that is probably more car than you should be in," he said.

According to Experian the average person financing a new car had the credit score of a 760. That is down six points from the last quarter. For a used car the credit score needed was also down to 659.