Auto loan business
The world is presently facing a financial turmoil which started some 2 years back with no early signs of recovery in the near future. The most badly hit sectors due to this recession are the realty and auto mobile business es which comprise of the goods which are of secondary importance to an ordinary man in his life. Naturally, with job cuts on the rise, the consumer spending has nullified so much that hardly any business is able to make profits leave alone the growth prospects. In this scenario, the entrepreneurs of auto loan business who earlier made their living by extending loan s to the borrowers as against the security of the auto mobile to be purchased like car etc that too for business purposes, are now almost strangled to death owing to the lack of debt demand from credit worthy customers.
The federal government on the other hand with a motive to pull up the consumer demand, is lowering the interest rates on the loan s to be disbursed by decreasing the Prime Lending Rate (PLR) now and then. As the auto loan business rates usually move in tandem to the PLR levels, the lenders have no other go than to decrease their rates for sustaining in the market.
Those who could not establish any niche or economies in the business till now in the auto loan s business are thinking otherwise and discontinuing their business. Their argument is that when the interest fetched on the loan s disbursed are so low that they are not able to cover their running costs properly, then, how can they act as the return for the risk taken ? Further, with the number of defaults on the rise, why should anyone continue the business of disbursing loan s Thinking on these lines, many a lenders who have been doing the auto loan business are now just maintaining piles of cash in their own accounts without willing to extend it for any credit purposes.
But, for those who are still continuing the auto loan business as lenders are coming up with a variety of ideas like extending 2nd mortgage facilities, lines of credit with the auto mobile as the security, no credit check loan s and even refinancing options so that they repay the existing higher interest rate loan for a lower rate extended by these people. All these gimmicks are just to attract the borrowers so that at least the lenders working capital gets covered in the short run and they can dream of making profits in the long run because, sustenance in these tough periods proves to be an acid test of longevity and profit making ability of those auto loan business lenders going further. In this way, they can gain that competitive edge in the market by gaining larger business in the future.
However, these auto loan business lenders are also very risk aversive that they are on a continuous lookout that they do not extend loan s for non-credit worthy customers. Hence, they stipulate certain conditions like :
Checking of the intending borrowers credit report and then deciding on the interest rates for extending the loan. It may be interesting to note here that even though the lenders first emphasize that they are extending no-credit check auto loan s, the reality is that it would only be done in an indirect manner rather than getting the information directly. So, irrespective of the fact whether it is a no-credit check loan or not, the best way is to keep a clean credit worthy record for a good financial future.
Checking of the fact whether 20% of the equity is put in by the owner at the time of purchase of the asset,
The vehicle condition check in case of a second hand purchase. This is to ensure that the auto loan business lender gets back his value through the sale of such an asset in case of foreclosure.
The salary of the loan seeker and his estimated disposable income after meeting all his expenditure pertaining to his day to day life is also assessed to ensure that he is in a position to repay the instalments in time.
After all the above conditions are satisfied, then only these auto loan business lenders will think of disbursing of loan s that too only for business purposes so that they can be assured that the asset secured would fetch some returns to the borrower and as such, he would be interested in repaying the instalments for acquiring the same.
As many borrowers are not able to establish such good credit score or satisfy all the above mentioned points, even though they are interested in asset purchase, because these auto loan business lenders are not willing to extend loan s for such interested parties by taking risk, the auto mobile business as a whole has taken a major brunt in its sales figures both in the new and resale auto mobile segment from the past two years. With extended job cuts even in the near future also, the consumer spending is also not showing any signs of revival.
The only ray of hope in all this imbroglio is that since the home purchases have also zeroed in the past two years, and the realty is falling down like a hell, those consumers who were till now dreaming of earning a decent living house have already lost hope and now they will be the ones to divert these funds towards the purchase of auto mobiles which may again spur demand in this segment. But, this demand would only be short lived because very few people can put in that much money without taking up any loan. So, this is the time that the auto loan business lenders understand their importance in the market and start disbursing loan s even with slight credit - check deviations so that in the future, the feds efforts are answered and the consumer spending picks up at least in the auto mobile sector. Once such demand in one sector picks up, it is a known fact that other sectors will also follow suit and in this way, this may pave way for a brighter tomorrow.