Subprime fallout spreads to auto industry

Buying a home isn't the only thing that's become more difficult since the subprime mortgage crisis led to tighter credit standards.

What consumers have to bring to the table to qualify for a car loan has changed, too.

"The good news is that for prime borrowers, interest rates are down," said John Genoshe, business manager for Daniels Chevyland. "The bad news is that qualifying to buy a car is much more difficult than it was two years ago."

Lenders scrutinize income, spending habits and loan payments far more than they used to.

Defaults on auto loans have increased dramatically for borrowers with credit scores below 720, said Bill Vogeney, senior vice president for Ent Federal Credit Union. So, lenders have had to price that risk into the interest rates charged to borrowers with less than ideal credit scores.

And, during 2008, lenders are requiring more money down for prime and nonprime borrowers. For instance, a "nonprime borrower" (FICO score of less than 600) would need 10 percent to 15 percent down for a $15,000, 72-month new car loan. Here's the kicker -- the interest rate would be about 15 percent.

During 2006, said borrower would have paid 11.9 percent for the same loan, with about 5 percent down.

But the biggest difference for consumers between now and then, Genoshe said, is that "it's a cardinal sin now if you're past due -- even one or two months -- on your mortgage. You can skip a credit card payment now and then, but don't be late on your mortgage -- it freaks the lenders out."

Copyright 2008 Dolan Media Newswires
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