Credit Crunch Squashing Auto Loans

The global banking meltdown is causing blowouts on auto loans. Or is it?

When the government has to inject cash into some of the world's largest banks, and General Electric goes to Warren Buffett for a $10 billion handout, there's no chance for regular working people to land a new car loan, right?

The answer may surprise you: that very question itself is hurting the auto industry right now.

Vote of no confidence

It's true enough that the big American carmakers are having cash problems. Auto sales dropped 27 percent between August and September, the biggest single-month drop in 17 years.  What's more, we're at the lowest unit sales level in 15 years. Some lenders are holding back inventory financing, forcing a few of the nation's largest dealership chains to close their doors, unable to afford stocking the cars in their own lots anymore.

Reading the news is bad enough. Add in sky-high gas prices and concern about job security, and it's only natural to hold off on that shiny new sports car that you've been dreaming about.

Unintended consequences

Dealers still want to sell you a car.  Ford, Chrysler, and General Motors all have 0 percent financing deals available right now, and GM is giving its 10 percent employee discount to outside customers. Even Toyota, the Japanese maker that doesn't do sales incentives very often, is losing sales and extending 0 percent auto loans to some buyers.

They're all trying to overcome the lack of consumer confidence with the best offers they can afford-and some that they can't. However, the bank still has a say. It used to be easier to get a car loan approved.  Now, you'll need a great FICO credit score to qualify for most of those interest-free loans.

The existence of those low-interest loans is proof that you still can get auto loans if you need them. Just be prepared for a larger down payment, tougher late-payment penalties, and stricter credit score requirements. The car loan equivalent of subprime mortgages has gone out of style in a hurry. During the last four years, banks approved too many risky loans like that. Now, many of those are turning into write-offs for the banks, and lots of repossessed vehicles.

Ride the lightning

This, too, shall pass. Once the credit crunch blows over, it will be easier to get a car loan on good terms again, either from the dealer, or through your favorite bank. If you need a new car before then, take good care of your credit history and look out for a desperate automaker or dealership to hand you a truly great deal. Rebuilding consumer confidence isn't a quick or easy task, and somebody will bring out the big guns when financial circumstances allow. The government wants to keep Detroit alive and well, and has already approved a $25 billion loan to help the Big Three develop more fuel-efficient models.