One of the primary considerations to buy a used or new car is the way in which the purchase will be financed. The recession that struck the United States through the latter part of the last decade saw many lenders tighten up their requirements for financing as more and more people defaulted and missed payments. People were finding it difficult to make complete, on-time payments or were simply defaulting altogether. Thus, a potential borrower with a low credit rating was much less likely to be able to get a loan to buy a new or used car. Subprime borrowers are a fairly significant portion of the total lending market.

This trend is changing with the recovering economy and predicted stability that is forecast for the relatively near future. United States lenders are relaxing the standards for approving an auto loan as the average credit score for new car borrowers continues to drop. The average credit score for auto loans in Q1 was at the same level as Q4 in 2008 at 766.

Subprime borrowers are considered to be those with a credit score below 680. Approximately 42% of borrowers for auto loans to buy a new or used car during the first quarter were subprime borrowers. This number was up from approximately 40.5% during the first quarter of 2010. One of the largest factors in the relaxing of standards is the fact that fewer borrowers are falling behind or defaulting on their loans. On-time payments allow the borrower to positively affect their credit rating making them a more attractive customer to future lenders.

Those individuals that were attempting to secure financing but may have been turned down in the past may have greater success with this shift within the industry. The automotive sector is recovering thanks in part to creative thinking and the government bailout that bolstered manufacturers. New styles of automobiles are either rolling out or will be rolling out of factories in the near future. The relaxed standards will make it easier to secure financing regardless of whether the consumer wants to get into a new or used car. Either way, the consumer, lenders, and manufacturers all benefit from relaxed standards.

Regardless of whether you’re in the market for a new or used car, if you’re applying for a car loan it’s important to pay attention to all the details and make sure you’re getting the best loan you can. Most loan companies will work with you on a lot of things, but reveal secrets to save money, likely not.

Match A.P.R.

Interest rates can vary greatly depending on the length of the loan, the amount of the loan and the loan company you work with. If you take the time to compare rates, you can save by asking your loan company to match the lowest rate. Don’t be afraid to tell them you’re inclined to start your loan elsewhere if they can’t match it. You need to look out for you.

Read the Fine Print

You know you’re supposed to read the whole contract and understand it, but the reality is most people just want to get through the process. The key points to look for are:

Financed Amount (amount of the loan)
Expected Interest (over the life of the loan)
Length of the Loan
Payment Amount
Payment Due Date
Grace Period
Late Fee
Pay Off Penalty

Once you know and understand these, the rest you can fine tune later when you’re rested from the buying experience.

Principle Only Payments

A ‘principle only’ payment is when you take in an extra payment and ask for it to be applied to the principle of your loan. This pays down your loan faster and saves you in interest. Some loan companies allow this and some do not. Read the contract to see if it’s allowed. If not and you plan on making extra payments when you can, consider a different loan company.

Pay Off Penalty

I know it sounds crazy, but some loan companies actually penalize you for paying off your car loan. Ask the company if they have a pay off penalty and how much it is. There are sometimes ways around it as well. If a pay off penalty is based on a percentage consider paying all but $1 off one month and paying the $1 off the next month.

Don’t be afraid to ask for any of these things and find out the truth of what your loan company is offering you. Shop around in all of these areas to find the best car loan for you.

The automobile industry is in the midst of a tough recovery, just like much of the economy in the United States. This recovery has helped interest rates on vehicle loans drop considerably. In fact, many auto loan rates have not been this low in nearly three decades. Frugality, fear, and the overall recession recovery are all key components to these record setting interest rates and the trend may be around for quite some time.

According to a recent article published in the Chicago Sun-Times, the current average interest rate on a four year auto loan is 6.21 percent. It has been more than twenty years since the average auto rate has been this low, which means it may be a great time to buy for consumers. Conservative shoppers and fear regarding the recession that has weakened the nation are causing lenders to drop interest rates in order to drive sales; this lender competition is a catalyst for the dropping auto rates.

Big lenders are able to compete with one another to gain the business of consumers and this corporate battle benefits car buyers as a whole because the lenders undercut the competition’s loan rates. Some national banks are offering interest rates below three percent to entice buyers to borrow from them and the bait seems to be working.

Those with good credit and moderate to high income are the consumers benefiting the most from the low interest rates. A solid credit score matched with a good income brings the lowest interest rates from banks and lenders because these consumers pose much less of a risk than consumers with a questionable credit rating. Consumers in this category should really take advantage of the low interest rates because it will save a great deal of money and since the auto industry is still recovering the consumer has plenty of negotiation power.

Other factors are leading to increasing business for the auto industry in addition to the low interest rates such as higher trade-in values, high inventory volume, and consumers’ need for better fuel efficiency in a vehicle driving their spending. Unemployment rates are dropping as well and many consumers are beginning to believe the media’s hype that America is truly digging out of the recession that has wreaked havoc on our nation for several years. For those who are in the market for your next vehicle, the lowest interest rates in twenty plus years may be a sign that it is the ideal time to buy.