Picture it: A married couple has just agreed to purchase a family sedan and walks into the finance and insurance office seeking financing. They had a good credit history for years, but all that changed in early 2009.
One of them lost a job. The payment on their adjustable-rate mortgage was about to skyrocket. And the value of their house plummeted, so that they lost all the equity they had built over the 10 years they owned it. They handed over the keys to the bank and joined the ranks of those with foreclosure on their record.
Now they're both working and want to replace their SUV with a car. What kind of finance terms should they expect, and how easy should it be to get them financed?
Some auto lenders say that they are now subprime customers and should expect to pay the high rates granted those with risky credit.
The number of subprime consumers is growing. In the past two years, 3.4 million Americans -- the new subprime customers -- have joined the group.
A recent FICO study shows that about 44.2 million people -- or 26 percent of the U.S. consumers who have enough credit information on file to receive a FICO score -- have credit scores below 600. That's up from 40.8 million people -- or 24 percent of scorable consumers -- in 2008.
Some dealers -- especially those in areas with high foreclosure rates -- say those victims of the credit crisis who have become the new subprime consumers should receive better treatment than people with a long history of credit woes.
"Lenders have loosened credit somewhat, but not as much as they should," says Mike Scarfia, F&I manager at Lund Cadillac in Phoenix. "Good, solid people are walking away from their houses. They shouldn't be lumped in with the deadbeats."
Aaron Mills, finance director of Ralph Schomp Honda in Littleton, Colo., agrees. "Customers who have been a prime risk in the past have a very difficult time understanding why they are no longer A-plus customers," he says.