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Free Market Forces Leading to Lower Rates, Longer Terms for Auto Financing

As more financing companies enter the market and old lenders began to lend again, consumers are benefiting from reduced interest rates and longer terms.

The benefits are not just for the consumers, but also for the automakers and the dealers as well since the more access to financing consumers have, the more vehicles will be sold. However, since market forces tend to swing back and forth over time, some industry observers are already warning that these low rates and agreeable terms will eventually lead to more defaults and, therefore, an increase of the number of reality TV shows about repo men.  

Illustrating this point are the ratios of the types of loans given. Loans to the most-credible of buyers have dropped by 7.1 per cent as a percentage of the total loans made in the past year. Meanwhile, the nonprime, subprime and the deep subprime car loans have increased as a percentage of the total loans given in the same period by 10.5, 13.5 and 1.4 per cent respectively. All three of these last types are classified as subprime loans, the riskiest type.