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Getting car loan with bad credit easier

| Wednesday, June 26, 2013, 8:12 p.m.

LOS ANGELES — Banks are increasingly extending auto-loan financing to borrowers with less-than-sterling credit, a trend that's contributing to a higher rate of missed loan payments.

The rate of U.S. auto-loan payments late by 60 days or more rose to 0.88 percent in the first three months of the year, credit reporting agency TransUnion said Tuesday.

That's up from 0.82 percent in the first quarter last year but down from 1 percent in the last three months of 2012, the firm said.

Among subprime borrowers, or those whom lenders deem a higher credit risk because of their track record of managing debt, the delinquency rate jumped to 5.5 percent in the first quarter from 5.09 percent a year earlier.

Steady job gains, low interest rates and improving consumer confidence have helped spur sales of cars and trucks. Many Americans are moving to replace older vehicles after holding back on purchases for several years during the recession. Vehicle sales climbed 8 percent in May to 1.4 million.

Lenders have responded, making loans available to more borrowers, even those with less-than-perfect credit.

“Lenders have determined that their portfolios can handle additional risk at this point in the business cycle,” said Peter Turek, automotive vice president at TransUnion.

As lenders continue to increase financing to high-risk borrowers, there's a greater chance those borrowers could fall behind on payments, Turek added.

Subprime borrowers accounted for 15 percent of all auto loans in the first quarter, unchanged from a year earlier. That share of all auto loans remains smaller than it was in the first three months of 2009, when subprime loans made up 20.3 percent of all auto loans, according to TransUnion.

All told, auto loan volume grew 6.1 percent in the first quarter versus the same period last year.

As lending has picked up, so have average balances on auto loans.

One reason for that is that banks are making more auto loans, which tend to have higher balances early on, as it typically takes several years for borrowers to pay them down.

For the January-March period, the average balance of an auto loan was $13,260, up 4 percent from $12,755 in the same period last year, the firm said.

Among subprime borrowers, the average auto loan balance grew 6.6 percent to $12,006 in the first quarter.

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