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Donna Harris & Amy Wilson Automotive News
UPDATED: 10/14/08 4:07 p.m. EDT
DETROIT -- GMAC Financial Services said yesterday that it will only lend money to prime borrowers with credit scores of more than 700.
The restriction would rule out one out of four new car loans, according to one recent report.
Dealers say they may have trouble finding alternative lenders if they funnel all their best contracts to GMAC.
"This is scary," said Jerry Seiner, president of Jerry Seiner Dealerships in Salt Lake City. "Who is going to step in and buy these contracts?"
Seiner says other auto lenders want dealers to send them a mix of contracts --including the most creditworthy. "Banks don't want to buy the contracts unless you send them the borrowers with 700 scores and above," he says.
In a statement, GMAC officials attributed the new policy to "the lack of stability in the global capital and credit markets."
For the first seven months of 2008, prime customers with scores exceeding 700 represented 74.3 percent of the U.S. new auto loan market, according to information services company Experian Automotive. A year ago, prime borrowers made up 71.1 percent of the new auto loan market.
And the move could have a greater impact on the used car market. According to another Experian report, 56.5 percent of all vehicle loans qualified as prime during the second quarter of 2008. That's compared with 62.2 percent during the second quarter of 2007. In this study, Experian defined prime as a credit score of 680 or higher.
Wow, what? What's the point of credit ratings if everyone can get a loan regardless of their being responsible or not?
Because your credit rating will determine the interest rate..the higher your rating the more bargaining power you have for lower rates
There are so many stupid things that ding your fico score..like closing out a credit card by the consumer....the whole fico score thing is way to rigid in the way it scores people
The whole "charging higher rates" for lower FICO scores was a stupid idea. If they can't keep their credit rating good, what makes you think they can consistently pay a higher price for what they buy?
It's all a part of the same system that is breaking down in front of us. In this case, sub-prime car loan.
This will make more people realize that if you can't pay cash for the vehicle, you can't afford it.
Sage advice. Rep for you and Susushi!
I work in a field where I see statistics for how long of loans and at what rates people are buying these cars....it was insane. 84months @>12%?
I always was a little jealous but shook my head when I would see people that likely made less than 1/2 what I did driving a car that cost twice as much. There has to be a term for people that have higher car payments than rents or house payments.
Not WOW, Little elmer . . . more like THANK GOODNESS!
This entire country would be much better off if those unscrupulous and unethical (read: DISHONEST AND GREEDY) lenders had only adhered to that minimum requirement years ago.
As others have posted . . . why have a Credit Score System?
I always was a little jealous but shook my head when I would see people that likely made less than 1/2 what I did driving a car that cost twice as much. There has to be a term for people that have higher car payments than rents or house payments.
HA! I make a decent buck for my age and I drive nice, used cars... cars that I can pay for all up front... 3 of them now! But your right, I see others my age with brand new cars, or cars all decked out and I know they either had someone buy it for them or they have 10 years of payments. I never really understood why people purchase things far beyond their means... I can only see mortgages and school loans as acceptable debts, assuming they're not a business owner... I don't think I will ever buy a new car unless I can pay for it all at once.
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