Since the housing bubble popped, banks have made it almost impossible for a lot of people to purchase homes.  Credit cards aren't offered like candy like they used to be. Unless you've got a golden financial plan for a business, you'd be better off to rely on family and friends to gather the cash for your business.

But, with auto loans, typically all you need to demonstrate is that you can fog a mirror and be willing to hold down a job. 

You've probably seen the billboards, television commercials, radio and newspaper ads.  Good credit, bad credit, no credit.  No problem.

“It's amazing how much the auto loan industry has relaxed it's lending standards, even in just the past 90 days,” said Al Bingham, the Utah author of The Road to 850, a book about the nation's credit scoring system.

It's no secret that the car dealers want to move cars off the lot as fast as possible.  While at the the same time, consumers are being more guarded about parting with their money. Here we have two opposing agendas.  How do the dealerships overcome customer caution?  Creative financing, of course.

The 80s mentality is still alive and well.  It's not what it costs; it's can I afford the monthly payment.

General Motors just purchased Americredit, a subprime lender that specializes in loans made to borrowers with low credit scores.  G.M. Said that it could increase auto sales by as much as 20% because they can control auto loan approvals.

Why has the credit approval process improved so much while banks have tightened up loaning money for virtually anything else?  Well, one huge factor is interest rates the lender can charge for the vehicle.  Sometimes, depending on the buyer's credit history, the lender can charge as much as 30% to the customer.  In addition to that, if a client misses a payment or two, cars are pretty easy to repossess.  It's difficult, expensive and time consuming to repossess a house.

Consumers like their cars.  They don't want to be left to ride public transportation and they want to have the freedom and flexibility to go where they want, when they want. On top of that, if someone is all of the sudden is without their wheels, friends and family are going to ask where their ride went.  The pride factor prevents them from telling people what really happened.  If they lose a house, they can have a million excuses.  Maybe they moved into an apartment because it was a more reasonable price per month.  Maybe they moved back with Mom and Dad to save some money until the husband finishes school, that sort of thing.  It's more difficult to explain why they don't have a car.  Plus, they want a convenient way to get to work.

However, according to a recent report by Standard and Poor's and Experian, auto loan defaults rose sharply from June to July...an increase of nearly 2% during that time.  During that same time period, defaults for credit card and housing loans remained steady, or dropped.  Is this a sign of the times?  Time will tell.

Since the decline of the economy a few years ago, the government has been pushing incentives for people to buy cars to stimulate the economy.    However, many consumers are in no financial shape to buy a car and the people who have the financial means to buy still don't have enough trust in the economy to buy one.  They just hope the car they are driving can last until the economy improves.

Is a 20 to 30% interest rate good for anybody except the lender?  Is it going to help the borrower or the economy?  Not likely, particularly in the long run.

According to the New York Times, some members of Congress are questioning whether G.M., in which we as taxpayers have a 61% share after we bailed them out, should be purchasing high-risk lending organizations such as Americredit.  Sen. Charles Grassley, and Iowa Republican had a question about the purchase.  He asked: “would taxpayers be better off if GM focused on making better cars that people want to buy  and stayed clear of repeating it's effort to make high-risk car loans?”

I t appears that once again another faceless corporation is using our tax dollars to prey on the unsuspecting and sometimes desperate people who fronted them the money to keep them in business.

Peace and Success,

Kevin Halper