It's getting easier to get a car loan.
"A couple of months ago, it was horrible," says George Magliano, an automotive research analyst with IHS Global Insight. "The least blemish on your credit report and you got nothing."
The loan approval rate for customers with the highest credit scores was 90 percent in June after sliding to 70 percent in late 2008 during the recession. It's this group that's taking advantage of the widely advertised zero-percent financing deals.
For the majority of consumers with middle-tier credit, in the range of 620 to 750, loan approvals jumped 12 percentage points in the past year to above 82 percent, says CNW Marketing Research of Brandon, Ore. Plenty of banks are eager to make deals.
And now, even those with poor credit scores are getting a break.
Historically, the approval rate for subprime borrowers — those with scores below 620 — ran about 60 percent. Last year, the rate fell to 5 percent. Now, it's running at 9 percent.
Subprime borrowers still need to make a sizable downpayment and will pay interest of 10 percent or more, but car buyers with poor credit make up a big chunk of the market.
About 17 percent of all the auto loans written for new car buyers in the first quarter were to customers with below-prime credit. This same group obtained 53 percent of the loans for used cars, according to the credit reporting agency Experian.
Selling more cars is vital to an economic recovery. The auto industry accounts for around 3 to 5 percent of the nation's gross domestic product and about 16 percent of all durable goods shipments. Better access to credit is an important step to selling more cars and helping an industry that has seen 250,000 jobs disappear in the past three years. Nearly 830,000 auto-related jobs still exist in the U.S.
It helps that interest rates are falling. The average rate for a four-year car loan this month is 6.3 percent, down from 7.2 percent a year ago, according to Bankrate.com.
There's another sign of a reawakening car credit market: Lenders are expanding.
One of the largest subprime auto lenders, AmeriCredit Corp., expanded the number of auto dealers it works with to more than 8,000 in the first quarter of this year — up from 4,500 a year ago.
"That's a sign that they're willing to tick up their lending; they're feeling a lot better about the trends," says Meghan Neenan, an analyst for Fitch Ratings.
Some lenders want customers to make larger down payments or bring in a more valuable trade-in to increase chances of loan repayment, says Keith Leggett, a senior economist at the American Bankers Association.
Others, including local and regional banks have relaxed car loan terms. SunTrust banks, for example, are extending the term of the loan, allow customers to borrow a higher percentage of the car's value and will more readily negotiate on a down payment, says Jeff Hooper, consumer lending manager for SunTrust. Many local banks are looking for new sources of revenue after losing money on commercial real estate loans.
What's more, General Motors' top North American executive Mark Reuss has said the company wants to boost sales to subprime customers, which currently amount to just 1 percent of annual sales.
GM said last month it is developing additional relationships with other financial sources to boost subprime lending.
It's likely incentives will continue to pump up auto sales and lenders will continue to expand their business, but not without a close eye on trends that might show the economy slipping backward.
"Everyone's being kind of cautious still because they're afraid of a double-dip recession and unemployment is still high," says Neenan, the Fitch analyst.