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Frugal sub-prime consumers assisted by short term lenders

May 10, 2013 Phil Burgess

According to CarFinance, sub-prime car buyers account for more than 43 percent of all car loans taken out. Many of these consumers are making smart purchases, choosing to buy economical cars that feature solid fuel economy. Short term lending can help responsible buying habits.

The Dodge Avenger and Kia Forte were the most purchased new vehicles by those with sub-prime scores between October 2012 and March 2013 the report stated. The U.S. Department of Energy estimates list that the Avenger gets as much as 31 miles per gallon on the highway while the 2013 Forte can get as much as 37 miles.

"With loans to the nation's large population of below-prime car buyers rebounding, and helping to fuel our economic recovery, the industry would be wise to keep a close eye on their vehicle preferences," said CarFinance CEO Jim Landy. "The CarFinance.com Top Ten Lists offer a snapshot of consumers focused on vehicle choices that are realistic and economically viable, and reflect the responsibility we are consistently seeing in their loan behavior."

Buyers are also focused on the long term, as the source noted that Kia's cars that made it onto the list - Forte, Optima and Sorento - all come with 10 year, 100,000 mile warranties.

Critics of sub-prime lending argue that many of these borrowers are unable to afford to pay premiums on auto loans. However, American consumers are showcasing that they are willing to be more frugal with their finances in the wake of the Great Recession.

Data from the Federal Reserve Bank of New York backs up that sentiment as car buyers are defaulting on loans less frequently.

The 90 day delinquency rate on auto loans decreased to 4 percent during the fourth quarter of 2012. Also, new auto loan origination rose by 4.2 percent at the end of last year.