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Lenders loosen car-loan criteria

November 12, 2010

Lenders are more willing to extend new-car loans to buyers with subpar credit scores, a sign that could bode well for the U.S. auto industry because it puts more customers in a position to buy vehicles, a new study shows.

Loans to consumers with credit scores considered less than prime accounted for 18.2 percent of auto loans in the second quarter, compared to 17.6 percent in the year-earlier period, according to Experian Automotive.

The increase, while modest, is an early sign that finance companies are warming to consumers whose credit scores are below the 700 range, said Experian’s Melinda Zabritski.

"While lenders have not loosened their criteria to the levels we saw three years ago, we do see an upward movement in loans to those middle-risk tiers," Zabritskisaid.

A crackdown on lending to riskier borrowers amid the U.S. financial crisis cut off access to car loans for many customers in 2009, contributing to the auto industry’s worst year since the 1980s.

General Motors Co. said this summer it would purchase subprime auto lender AmeriCredit Corp. in a $3.5 billion deal designed to free up loans for consumers with less-than-prime credit scores. The automaker, which unlike most of its rivals lacks a so-called captive finance arm, said an inability to reach those buyers was hurting sales.