Charles Darwin theorized that a species needs to adapt for survival. In light of the recent subprime market shake-up, consumers will have to adapt to a new environment if their hopes for an auto loan are to survive.

You don't need to go to the North Pole to see the impact of changing environments. Much like a polar bear swimming through an ocean of melted icecaps, many consumers are treading water in today's shifting credit landscape.

Everything from auto loans to credit cards has been affected-and with the change, your ability to access credit has been significantly curtailed. You'll need to reassess your approach to the usual sources of credit, including car loans, credit cards, and mortgages.

Auto loans at more attractive rates

Until recently, conventional wisdom used to dictate that it was reasonable to buy a car using a home equity line of credit (HELOC). Those were the days when home values were climbing at a blistering rate, and it seemed like the equity would grow forever. The market, however, had other plans. With the recent downward plunge, people are finding that much of their equity has vanished overnight. Banks can no longer extend credit like they did in recent years.

Interest rates for car loans have not spiked, though, despite the problems in the housing arena. With your access to HELOCs limited, you may want to take out an auto loan, and then wait until the housing market stabilizes to refinance to a better rate.

Credit markets feeling the crunch

While the car loan industry may be feeling little impact, the lending parameters have changed significantly for home mortgages and credit cards.

On the mortgage front, there are a variety of mortgages that are being eliminated due to lax credit standards and borrower uncertainty. These include "no proof of income" loans, and some adjustable-rate mortgages (ARMs).

Borrowers with good credit will also find that lenders have tightened their belts a notch or two. Credit reports are being highly scrutinized, and more documentation is required on a loan. Lenders are also extremely squeamish about 100 percent mortgage financing.

Credit cards are also feeling a jolt. Banks need to boost their bottom line, and there's no faster way to do that than to bump up interest rates on balances. Many introductory balance-transfer periods have also shrunk from 12 months to three for many credit cards.

If you're in the market for an auto loan or any other type of credit, what can you do to ride out the rough times? Scrutinize your budget and determine where you can save extra money. If rates continue to rise, you'll need those extra dollars to offset interest rate spikes. You'll also want to limit how much equity you tap in this turbulent market.

Your financial environment is changing all around you. To adapt, you'll need to be aware of changes, and change your approach to credit. In this case, it's not the strongest who'll survive, but the smartest.

Published on November 11, 2008