Interest Rates for Car Loans
Using credit and risk management tools is essential for financial institutions of all sizes. Especially with the economy working its way back to a full recovery, and more loan options becoming available to hopeful borrowers, organizations must still ensure that they remain profitable through the entire process.
The Los Angeles Times recently highlighted a new trend in the auto industry – borrowers are taking out extended loans at lower interest rates.
According to the Times, longer loans can get borrowers into trouble, especially those who already have a troubled credit history and might have difficulty getting basic loans. But, extended loans can be a wise investment for shoppers who have good credit and want to drive their vehicle for many years. These customers are eager to cut their car payments and use the money on other investments.
“Someone who really has the budget for a Corolla figures if they extend the financing out, they can buy a Camry,” James Lentz, chief executive of Toyota Motor Corp.’s North American division, told the news source.
Casey Bond, managing editor of GoBankingRates.com, a personal finance information company, said that the new practice is essentially treating a car loan like a home mortgage. Either way, consumers have to do the math and figure out what will work best for them and their finances.
Bond added that even with low interest rates, shoppers should not “use debt for purchases that don’t fit [their] budget.”
Regardless of whether a financial institution is willing to consider stretched loans for automobiles or even home purchases, it is important to accurately assess borrowers’ creditworthiness. Through risk management tools, banks can find a well-rounded view of potential borrowers, ensuring that their investment will benefit all parties involved.
