Car buyers borrow more, for longer terms

Toyota cars are on display at the Toyota of North Hollywood dealership on May 9, 2012 in Los Angeles, Calif. Banks are willing to lend to buyers with subprime credit ratings again. Now you can be underwater on your car as well as your house.

Kai Ryssdal: It's still, lo these many years after the financial crisis, not so easy to get a mortgage in this country.

Getting a car loan, though? Not so hard at all. Lenders are opening their vaults for nearly anybody wanting to buy. Marketplace's Adriene Hill reports.

Adriene Hill: The car market is looking pretty good to lenders these days.

Paul Edelstein: It's a better bet to do auto lending than it is to do mortgage lending.

Paul Edelstein is an economist at IHS Global Insight. He says right now people are less likely to get behind on their car payments than their mortgages.

Edelstein: I bet there are some households that figure they can do without owning a home, they have another option to rent. But you need a car to get to and from work to make any payments on anything.

And as lenders feel less risk, they feel like making more loans. Edmunds.com estimates about 8 percent of current car loans are going to sub-prime borrowers.

Alec Gutierrez is an industry analyst at Kelley Blue Book.

Alec Gutierrez: To be honest, they are pretty much lending to anyone with a pulse.

People are financing about 90 percent or so of the value of the car, and taking out five-year loans, on average, to lower their monthly payments.

Which can lead, pretty quickly, to underwater car loans -- when you owe more than the car is worth.

Gutierrez: You will be underwater for a short period of time as you drive it off the lot.

During the recession, people stayed underwater with their car loans as the value of used cars fell. But today, Gutierrez says, that's happening less.

Gutierrez: The used car market is about as strong as its ever been.

Which means, come trade in time, more people are finding themselves getting paid, rather than paying for, their old car.

I'm Adriene Hill for Marketplace.

About the author

Adriene Hill is a senior multimedia reporter for the Marketplace sustainability desk, with a focus on consumer issues and the individual relationship to sustainability and the environment.
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Upon hearing the keywords "lenders, sub-prime borrowers, 'lending to anyone with a pulse,' 'owe more than the car is worth,'" I was waiting to hear the punchline - "automobile bubble." American marketeers seem to be really good at finding another "quick-buck" scheme (cars) when another scheme has flopped (housing). I am just shocked (though not really) that lenders are not applying to all their markets what they learned with the mistakes of lending to sub-prime lenders in the housing bubble. How is America supposed to get out of this recession if those who put us here keep making the same damage to our markets? Following the next "quick-buck" scheme is just not sustainable for America anymore.

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