Auto loans

Not long ago, some auto shoppers only vaguely knew what credit scores were. Now, customers not only know what they are, most know what theirs is before they step foot into a dealership.

It's part of the new age of auto financing that includes better-informed customers, as well as more efficient dealership finance and insurance operations.

F&I remains a pivotal automotive profit center, as evidenced by the latest Ward's Dealer F&no;I 150, an annual list of outstanding performers. Collectively, their F&I revenues totaled $711.9 million. (See list on page 16.)

Despite a more enlightened clientele, some consumers remain woefully uninformed when it comes to auto financing. They may fail to realize the full impact of a long-term loan on a pricey car they bought with little money down.

Drawn by low monthly payments, they are unmindful of the fact that the longer the loan terms, the more the ultimate payout.

“The lowest payment attracts them,” says Ann Bybee, corporate manager-planning and communications for Toyota Financial Services. “They don't understand that it may cost them $10,000 more in the end.”

Several auto makers and the National Automobile Dealers Assn. run assorted programs to address financial illiteracy among car buyers.

Such initiatives may be making headway, because a growing number of car consumers better understand the finer points of financing a car.

Also aiding that cause is the Internet and its vast information offerings that have helped make many customers smarter car buyers. The recent economic downturn has taught them some painful lessons, too.

The recession made many people more aware of their finances and their credit status at a time when credit was frozen and many consumers began facing problems securing auto loans unless they were prime-rated customers.

Many one-time prime customers dropped to nonprime and subprime levels because of financial setbacks such as job losses.

A cycle of financial life is that people who suffer a job loss often default on loans. That, in turn, mars their credit scores. But it has also heightened their credit awareness.

Technology has helped make credit scoring more refined and able to sort out true deadbeats from good people who had bad financial things happen to them.

Fair Isaac, creators of the FICO scores, has developed new metrics that now distinguish “between habitual offenders and those in tough circumstances suddenly,” says Randy Crisorio, president and CEO of United Development Systems, a dealership F&I training firm.