Why are banks not loaning the same amount of money on car dealerships as they used to? Let’s find out!
As we already know, vehicle values had dropped 27% since the beginning of 2020, and luxury cars are the fastest dropping when it comes to vehicle values at auction. Why is it so critical for cars for sale near me prices to go down, and why this affects the market so much?
- The number one reason Why is because of dealers and their MMR thing.
- And then a lot of banks use Kelly Blue Book wholesale as their main guide. They actually get the values from this source, time it by 110, 120, 130, and 150% and that is what they lend to the consumer.
So as these books start to drop, the banks get more conservative and stop lending less money sometimes due to pre-settlement loans. And this is why the used cars for sale near me market is slowly retracting and prices are starting to correct.
Back in the day, in 2020, books were going absolutely insane. Every month the book was going up 3, 5, 10%. The banks would adjust and give more and more money, and this tendency started going up. Banks started lending 150, 160, and 170% Loan-To-Value ratio, things they normally would never do because of inflation matters. Today, as the prices are correcting and going the other way, they are slowly scaling back their books.
If you are buying a 100 thousand USD car and now we lost 27% of its book value, the car is only worth 72 thousand USD, they are going to lend a well-qualified buyer around 85 thousand USD on this occasion.
As the banks start to get restrictive and getting more conservative with credit, it is getting harder and harder for them to lend. And they are making it more restrictive, with a more down payment, fewer months on the term (84 and 96 months of warranty are gone), and other specialty types of financing is dropped by most of the banks. The main question instead is Can these people afford to pay if they lose their jobs? They want to see a decent downpayment of 20-30%.
What will be your choice in 2023? To buy or to wait a bit more? Check Rolls Auto Sales! We wish you to find your perfect car deal! Good luck!