DETROIT — Lenders are more willing to extend new car loans to buyers with subpar credit scores, a sign that could bode well for the U.S. auto industry because it puts more customers in a position to buy vehicles, according to a study to be released Thursday, The Wall Street Journal reported.

Loans to consumers with credit scores considered less than prime accounted for 18.2 percent of auto loans in the second quarter, compared with 17.6 percent in the year-earlier period, according to Experian Automotive.

The increase, while modest, is an early sign that finance companies are warming to consumers whose credit scores are below the 700 range, said Melinda Zabritski, Experian’s director of automotive credit.

“While lenders have not loosened their criteria to the levels we saw three years ago, we do see an upward movement in loans to those middle-risk tiers,” Zabritski said.

A crackdown on lending to riskier borrowers amid the U.S. financial crisis cut off access to car loans for many customers in 2009, contributing to the auto industry’s worst year since the 1980s.

General Motors Co. last month said it would purchase subprime auto lender AmeriCredit Corp. in a $3.5 billion deal designed to free up loans for consumers with less-than-prime credit scores. The automaker, which unlike most its rivals lacks a so-called captive finance arm, said an inability to reach those buyers was hurting sales.

Borrowing among U.S. consumers fell for the fourth straight month in May, dipping by 4.5 percent, according to the Federal Reserve.

The biggest decline was seen in the revolving credit category, which mainly consists of credit card debt. From April to May, the category fell at an annual rate of 10.5 percent. Since March, the category has dropped by $15.7 billion.

Borrowing in the nonrevolving credit category, composed mostly of auto loans, fell for the second month in a row in May, this time at an annual rate of 1.4 percent, or $1.8 billion. Since March, nonrevolving credit has fallen by $18.3 billion.

Interest rates on new-vehicle loans remained stable at 4.13 percent in May, but are still below the first quarter average of 4.31 percent.

Loan terms mirrored the first quarter average, increasing slightly from 62.6 months in April to 62.9 months in May.

The loan-to-value ratio on new-car loans reached 87 percent in May, a slight decrease from the 88 percent recorded in April and below the first quarter average of 89 percent.

Amount financed increased to $27,886 in May, up $89 from the $27,797 recorded in April. The increase snaps the four-month decline in this segment, but is still below the first-quarter average of $28,444.

General Motors Co. is in talks with financial institutions to broaden the availability of auto loans, a strategy that for now sets aside any plans to acquire its own lending arm, people familiar with the situation told The Wall Street Journal.

The carmaker has had trouble providing loans to more consumers, particularly those with weaker credit history, and views this as a barrier to winning back U.S. market share.

The company is looking to become more attractive on Wall Street ahead of an initial public stock offering expected later this year. GM—majority-owned by the U.S. government—plans to update stock analysts Tuesday on its finances and outlook.

GM sold control of its GMAC LLC finance arm three year ago, making it one of the few major vehicle sellers in the U.S. market without an in-house lender.

GM executives believe that entering into deals with other lenders such as major banks won’t provide the same boost GM would receive with its own finance company, but see it as a step toward eliminating the disadvantage, these people said.

GM expects to continue its relationship with GMAC, now known as Ally Financial Inc., but the auto maker will look to other lenders to fill gaps where it feels GMAC hasn’t been as willing to make loans, such as in subprime lending and leasing, these people said.

“By not financing [subprime] consumers, they are locking out about 40% of the U.S. population,” said Melinda Zabritski, director of automotive credit for Experian Automotive.

The approach diminishes the possibility that GM will start its own finance company or try to regain control of GMAC’s auto-lending business, two options the Detroit company studied in recent months. Ally wasn’t interested in such a deal, the people familiar with the matter said.

GM dealers have complained that they are forced to turn away some customers because of an inability to tap financing.

A GM spokeswoman declined to discuss specifics but said the company is “using a multiprong approach to provide competitive financing for our dealers and customers.”

Driving up sales is a key mandate from GM Chairman and Chief Executive Edward E. Whitacre Jr. The company’s sales this year were up 15 percent through May compared to a year ago despite shedding four of eight brands, but rival Ford Motor Co., which owns Ford Motor Credit Co., increased its sales at twice that rate.

SCHAUMBURG, Ill. — American consumers are doing a better job of making payments on their auto loans as delinquencies on 30- and 60-day loans fell in the first quarter of 2010, according to Experian Automotive.

The 30-day delinquency rate fell 1.06 percent from the first quarter 2009 to first quarter 2010 (2.82 percent to 2.79 percent), according to Experian Automotive’s analysis of the automotive finance market as of the first quarter of 2010. The 60-day delinquency rate fell from 0.79 percent in first quarter 2009 to 0.78 percent in first quarter 2010.

“As we look for positive economic trends related to consumer behavior, the drop in automotive loan delinquencies is a step in the right direction,” said Scott Waldron, president of Experian Automotive. “A healthy lending industry is ultimately an important pillar of a healthy auto industry. When fewer people are delinquent on payments, it is good for lenders, which should translate into positives for the auto industry down the line.”

Despite the drop in loan delinquencies, lending institutions are still taking a cautious approach to their lending strategies. The average credit score for a new-vehicle loan in the first quarter 2010 was 776, up three points from the first quarter 2009. In addition, the percent of near prime, subprime and deep subprime loans for new vehicles dropped from 17.99 percent in the first quarter 2009 to 16.86 percent in the first quarter 2010.

“It is very clear that lenders continued to take a disciplined approach to new vehicle loans in the first quarter,” said Melinda Zabritski, director of automotive credit for Experian Automotive. “As a whole, lenders remain much more risk-averse than they were two or three years ago. However, financing is still available for some customers in higher-risk tiers. Automotive retailers might need to look a little harder and might need to educate their customers about changes in loan terms, but it is still possible to get these consumers into a vehicle.”

Other findings include the following:

• The overall finance market has remained stable, with growth occurring in prime segments (total prime market up 2.55 percent).
• The average credit score for used vehicle loans rose to 665 in Q1 2010 from 661 in Q1 2009.
• The states with the highest average credit scores for new vehicle loans were Minnesota (805), Wisconsin (797), Iowa (795), Colorado (791) and Connecticut (791).
• The states with the lowest average credit scores for new vehicle loans were Mississippi (752), Texas (754), Louisiana (754), Nevada (755) and West Virginia (760).

Car buyers are hearing the words “Your loan is approved” more often these days, spurred by a trillion-dollar government program that provides guarantees when those loans are sold to investors. That is helping banks, credit unions and auto finance companies make auto loans at a quickening pace. And consumers are paying less to borrow. Interest rates have been at record lows since last December.

It’s bit of good news for the auto industry in the United States, where 2009 sales are expected to hit a 30-year low of around 10 million when figures are announced Tuesday, reported The Associated Press. Partly because of loosening credit, industry analysts expect more than 1 million cars and light trucks to be sold in December, the best monthly performance since Cash for Clunkers in August.

Financial firms wrote 5.5 percent more car loans in the third quarter compared with the prior three months, Experian Automotive says. Fourth-quarter figures aren’t yet available, but Jesse Toprak, vice president of the auto pricing tracker TrueCar Inc., says December saw an uptick in auto loan approvals for consumers with average or above-average credit as auto finance companies tried to clear out inventory.

Paul Taylor, chief economist for the National Auto Dealers Association, said used-car prices also have stabilized due to limited supply, making used-car loans more attractive to banks.

Still, Toprak said it could take another year or even longer for financial firms to trust consumers enough to return to normal levels for auto lending. It’s also far from the freewheeling days of the credit boom. Third-quarter auto lending was down 30 percent from the same period in 2006, a year when U.S. car and light truck sales reached 16.5 million.

In the meantime, only those with good credit need apply.

A top-tier borrower — someone with a credit score between 720 and 850 — can get a 36-month auto loan with an average monthly rate of 5.74 percent, down from 6.65 percent a year ago, according to Informa Research Services, a financial research firm headquartered in Calabasas, Calif. On a $20,000 car loan, that’s a savings of nearly $300 over three years.

But the cost of borrowing has risen for people in the bottom tier. A person with a score of 500 to 589 has seen the average rate climb to 18.56 percent from 16.47 percent a year ago. That translates to an extra $751.68 over 3 years. Banks are still nervous about loaning money to risky borrowers given high rates of unemployment, foreclosures and late payments since the financial crisis began.

“We used to have a subprime auto lending industry,” says Dan Alpert, managing partner at Westwood Capital, an investment bank involved in the securitization business. “We don’t have that anymore.”

Although demand for autos has picked up from depths seen at the start of 2009, the lending machine really got moving thanks in large part to grease from the government’s TALF — or Term Asset Backed Loan Facility — program. The program began last March and allows investors to borrow money from the Federal Reserve to buy the loans off lenders’ books. This raises money and makes room for financial firms to write more loans.

There is evidence it’s working. Financial institutions raised more than $19 billion by selling securities made of bundled auto loans in the third quarter last year. That’s up nearly 60 percent from the second quarter and more than sixfold from the same period in 2008, according to the Securities Industry & Financial Markets Association.

TALF is scheduled to end in March 2010. Whether the market for securitized loans can stand on its own at that point depends on the state of the economy, lending experts say.

The concerns are similar to those in the housing market, where tax credits for first-time home buyers have helped prop up demand. But those credits expire April 30. And loan activity, in general, has been weak. According to the Federal Reserve, loans by the nation’s 8,000 banks have fallen 8 percent to $6.7 trillion in the past year, and some analysts expect them to keep falling at least through next year.

But there are good signs. The proportion of loans — auto and other — requiring TALF support has declined steadily over the past several months and should continue to fall early this year as the market for securitized loans continues to improve, says Tom Deutsch, deputy executive director of the American Securitization Forum, an industry group that represents those who turn debt into bonds.

MINNEAPOLIS – Indirect lending will be critical to the overall growth of U.S. banks and credit unions during the next two years, according to a recent survey by Wolters Kluwer Financial Services.

With auto loans becoming more attractive to some lenders following the mortgage crisis, research was conducted to get a broad view of banks’ and credit unions’ indirect lending activities in the future. The survey, conducted in September 2009, showed that more than half of 146 compliance officer and consumer lending officer respondents (53 percent) feel that indirect lending will be critical to the overall growth of their organization during the next 24 months. Credit unions were more likely to express that attitude than banks. More than 60 percent of the credit union respondents expect indirect lending to be critical to their organization’s growth.

As lenders look to do more business in the indirect lending space, they must also carefully assess what is needed to manage their growth. A key part of that process is identifying the risks associated with doing business with third parties, including auto, marine and RV dealerships.

“Risk and fraud prevention are critical in helping avoid problematic vehicle loans that can hurt a lender in the future,” said Lee Domingue, CEO of Indirect Lending at Wolters Kluwer Financial Services.

Lenders surveyed said their top concerns when working with dealerships to process indirect loans include

• incomplete loan documentation,
• lower quality applicants and
• dealers’ compliance knowledge.

“Lending institutions—particularly credit unions—can see a benefit in expanding their presence in the indirect lending market,” said Domingue. “However, this research shows dealerships that lenders, regardless of size or type of organization, really have the same concerns when it comes to financing vehicle loans. It’s important for dealers to be proactive in addressing those concerns if they want to build and maintain strong lender relationships.”