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Making Homes Affordable

How widespread is the credit crunch? It has now trickled down beyond mortgages and has entered the automotive market, and it is not going to stop there. GMAC Automotive Financing announced a few weeks ago that it will no longer extend credit to borrowers who do not have at least a 700 credit score. In addition to this stringent standard, all loans are capped at the dealer’s invoice price and limited to a 60 month maximum term. This means that consumers will need to make a down payment, typically at least 10% of the purchase price, to be eligible to borrow the necessary funds to purchase a vehicle. While GMAC is getting most of the attention, many smaller car companies have enacted similar, albeit not as strict, lending standards.

The days of the “impulse buy” are gone when it comes to car lots. Consumers now must be as prepared to buy a car as they are to purchase a home. They must have all of their figurative “ducks in a row” to satisfy the stricter guidelines being set forth by the automotive industry. With banks continuing to tighten their purse strings, the ongoing downward spiral of Wall Street, and with no apparent economic remedy in sight, the next logical steps are loans and credit cards. Traditionally, when banks have turned away potential borrowers, those customers go to local credit unions to receive the funds necessary to purchase a car, add on to their home, or simply pay their bills. Unfortunately, even the sturdy and reliable credit union is being pickier with regard to risky borrowers. As those streams of revenue are drying up, more and more consumers are turning to Visa, Mastercard, and American Express to save them.

When boiled down to its base level, the economic collapse equals one thing—there is less money to go around, because there are fewer people willing to lend. This does not mean all hope is lost. Rather, it means that borrowers need to be in the strongest credit position to qualify for loans and lines of credit. In this volatile financial climate, your best investment will not be found in stocks, bonds, or mutual funds, rather it can be found in your credit report.