Easy Credit Is Back -- at Least for Car Buyers

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car loansAuto loans are easier to get now than they have been in years. That's the conclusion of a new report from credit research firm Experian, which said Tuesday that during the first quarter U.S. lenders gave car buyers some of the best terms since the financial crisis.

Why such generosity? Because more lenders are competing for your business, Experian says.

If you're shopping for a car -- especially if your credit is less than perfect -- you already know why this is good news.

With more lenders competing for your business, the terms of your loan -- things like the interest rate you'll be paying, and the amount of time you have to repay -- are likely to be better than they would have been a year or two ago. For some people, that takes the pressure off trying to keep that old jalopy running for another year.

And what's good for car shoppers has been good for the automakers, too: Toyota's (TM) sales were up about 12% for the year through April, and Ford (F) has seen its sales rise about 5%, as U.S. auto sales have picked up in recent months.
This is another sign that things are getting better -- or at least, getting back to "normal" -- in the U.S. economy. But is that really a good thing?

Will All This Lending Lead to Trouble?

Some may ask if all this competition to lend is a good thing. After all, banks like Citigroup (C) and Bank of America (BAC) got in trouble not so long ago for making too many bad loans -- trouble that took the economy down with it.

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It's natural to wonder whether more relaxed lending standards in the auto industry could lead to a repeat performance. But analysts say that's not likely.

They point out that auto loans are safer for the banks than the mortgage and credit card loans that contributed to the financial crisis. "Subprime" car loans -- loans to people with credit scores below 680 on Experian's scale -- typically have lower default rates than the subprime mortgages that got so many banks into trouble back in 2008.

Why? It's because people need their cars to get to work. Since it's relatively easy for a lender to repossess a car, cash-strapped borrowers are much more attentive to their auto loans and tend to make their car payments a high priority.


Before You Sign on the Dotted Line...

As tempting as good rates on a car loan may be, buyers still must consider the bottom line. The fact is that cars are not getting any cheaper.

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The 10 Cars That Lost the Most Value
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Easy Credit Is Back -- at Least for Car Buyers

2010 New Retail Price: $34,137
2011 Used Retail Price: $20,120
Depreciation: 41.1%
J.D. Power Predicted Reliability Score: 3.5/5

When Chrysler introduced its brand new 300 line in 2005, it met with much success. The 300C was awarded Motor Trend Car of the Year. The vehicle sold extremely well -- nearly 145,000 units in the first year, and 120,000 in the second. Since then, however, sales of the full-size sedan have dropped heavily as other vehicles, including the new Buick Lucerne, the Ford Taurus, and the Ford Fusion, have gained ground in the market. The 2010 version of the 300 posted a record-low 37,116 units sold. According to Edmunds, many of its features, including its four-speed automatic transmission, have become outdated. In response to flagging sales, Chrysler introduced a completely overhauled 2011 edition of the vehicle.

2010 New Retail Price: $36,087
2011 Used Retail Price: $24,979
Depreciation: 30.8%
J.D. Power Predicted Reliability Score: 4/5

From the late 1990s through 2000, a series of horrible vehicle rollovers due to tire tread separation led to the recall of thousands of Firestone tires on Ford Explorers. While Ford and Firestone blamed each other for the debacle, the brand value of the full-size SUV has never been the same. Ford continued the line in several generations, with new versions being introduced in 2002, 2006 and 2011. With the release of the "fifth generation" Explorer this year, last year's model  lost a significant portion of its value -- more than $11,000 in a single year.

2010 New Retail Price: $32,073
2011 Used Retail Price: $22,147
Depreciation: 30.9%
J.D. Power Predicted Reliability Score: 4.5/5

Ford's flagship muscle car had a major successful redesign in 2005. In that first year, the fifth-generation Mustang sold 160,000 units and more than 166,000 units the next. Those numbers began to dwindle toward the end of the decade, and the 2010 version sold less than 75,000 units. In an attempt to boost sales, Ford included so many upgrades to the engine, transmission, and other components, that it could almost be considered a new generation of Mustang. The 2011 version has won a series of awards, including making Car and Driver's Ten Best list. This has, of course, left the 2010 version in the dust, and while that year's Mustang received excellent reviews from both Consumer Reports and J.D. Power, it lost more than 30% of its value in the past year.

2010 New Retail Price: $63,605
2011 Used Retail Price:$43,799
Depreciation: 31.1%
J.D. Power Predicted Reliability Score: 3.5/5

The QX is Infiniti's full-size luxury SUV. The first generation ran from 1997 to 2003. A much larger version, built on the platform of a Nissan Titan pickup truck, arrived in 2004. It's one of the most expensive full-size SUVs on the market, but that model received poor reviews from J.D. Power, which gave it a 2.5 out of 5 for initial quality and  overall performance. Horrible sales led in part to a complete redesign, and to better sales. The 2011 version sold 27.1% better this June than last, when it moved a measly 658 units, according toMotor Trend. But the resale value of the 2010 QX65 has dropped by nearly $20,000 in a single year -- the equivalent in value to a brand new 2012 Nissan Altima.

2010 New Retail Price: $51,360
2011 Used Retail Price: $35,220
Depreciation: 31.4%
J.D. Power Predicted Reliability Score: 4/5

The Cadillac STS suffered the same fate as the DTS in 2011: The line was discontinued after consistently poor sales. In 2010, the STS sold just 4,473 units, down 29,000 units, or 86% from 2005. The 2010 version of the full-size luxury car lost more than 31% of its value in a single year. Cadillac next attempt to crack the full-size luxury market will come when it introduces the XLS in 2012.

2010 New Retail Price: $31,057
2011 Used Retail Price: $21,095
Depreciation: 32.1%
J.D. Power Predicted Reliability Score: 3.5/5

The E-series wagon, Ford's popular line of full-size vans for passengers and freight, reached its 50th anniversary in 2011, which prompted a special edition of the van, including a variety of new accessories such as a built-in navigation system and HD radio. The 2010 version of the vehicle, while part of the same generation, has nevertheless lost nearly a third of its resale value. The 2010 version of the van also received poor reliability scores from J.D. Power.

2010 New Retail Price: $22,183
2011 Used Retail Price: $15,056
Depreciation: 33.2%
J.D. Power Predicted Reliability Score: 4/5

The car received a 2.5 out of 5 from J.D. Power for overall performance and design as well as for for comfort, and a 3 out of 5 for performance. In addition, a hybrid version of the Sonata was released in 2011, which may be one of the main reasons for the 2010 non-hybrid's precipitous drop in value.

2010 New Retail Price: $23,183
2011 Used Retail Price: $14,641
Depreciation: 36.8%
J.D. Power Predicted Reliability Score: 2.5/5

The 2010 Kia Optima is part of the second generation of the Hyundai-owned automaker's line of mid-size sedans. With only average or below-average performance and reliability scores from Edmunds and J.D. Power, the car had difficulty competing with incredibly popular mid-size  vehicles as the Camry, Accord, and Civic. The 2010 version turned out to be the last of its generation, and the introduction of the completely revamped Optima in 2011 -- and a hybrid version -- caused the value of the one-year old vehicles to plummet.

2010 New Retail Price: $29,652
2011 Used Retail Price: $18,544
Depreciation: 37.5%
J.D. Power Predicted Reliability Score: 3/5

Dodge's legendary muscle car has seen many changes over the past half-century. The most recent generation, which ran from 2005 to 2010, sold moderately well but received horrible marks from Consumer Reports and other reviewers. The magazine gave the latest version of the vehicle a 2.5 out of 5 for initial quality, and 3 out of 5's for overall performance, design, and reliability. In 2011, Dodge introduced a new generation of the vehicle. According to Edmunds, the redesign features "a long list of improvements," including modified taillights, a new dashboard, and a sleeker body design.

2010 New Retail Price: $34,137
2011 Used Retail Price: $20,120
Depreciation: 41.1%
J.D. Power Predicted Reliability Score: 3.5/5

When Chrysler introduced its brand new 300 line in 2005, it met with much success. The 300C was awarded Motor Trend Car of the Year. The vehicle sold extremely well -- nearly 145,000 units in the first year, and 120,000 in the second. Since then, however, sales of the full-size sedan have dropped heavily as other vehicles, including the new Buick Lucerne, the Ford Taurus, and the Ford Fusion, have gained ground in the market. The 2010 version of the 300 posted a record-low 37,116 units sold. According to Edmunds, many of its features, including its four-speed automatic transmission, have become outdated. In response to flagging sales, Chrysler introduced a completely overhauled 2011 edition of the vehicle.

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Experian says that the average new-car loan is up to almost $26,000. As new cars have become more "loaded" than ever -- loaded with elaborate safety features, and the infotainment gizmos once seen only on luxury cars -- their costs have risen sharply.

All the great features can make your current car seem like a tired old ride in comparison. But buyers still need to shop carefully, and pay attention to the true cost of their coveted new ride.

At the time of publication, Motley Fool contributor John Rosevear owned shares of Ford. The Fool owns shares of Ford, Bank of America, and Citigroup. Motley Fool newsletter services have recommended buying shares of and creating a synthetic long position in Ford.


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