Local lenders say days of easy loans are over

Good credit, down payment are needed again

By Jeremy Fugleberg, Journal staff | Monday, October 06, 2008

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For Kathy Waggoner, a U.S. Bank loan officer, getting her first car as a youngster didn't come easily.

"My first car loan came with a scolding from the man who lent me the money," she said. His message: "You need to make your payments."

That gut-straight honesty came courtesy of a small-town banker in a different time, she said, but the message of responsibility has a ring of truth to it today as credit is harder to come by from local lenders.

Credit markets have tightened over the past several months, and even more so in recent days, as Wall Street and Congress look financial disaster in the eye.

For bankers, car dealers and new car buyers, it's back to lending basics. Lenders look more closely at your record and ability to pay and aren't so quick to give you a loan for more than a vehicle is worth. That can often mean a down payment.

"In the past, you could push the lenders over the edge" and they would advance money beyond the cost of the vehicle, said Jerry Mansfield, finance manager at Rapid Chevrolet-Cadillac. "Now, we're seeing more and more requests for customer commitment."

Someone with good credit can still get a loan for a car, despite the bank's tighter purse strings, local bank officers and auto dealers say.

"They are tightening up a little bit," Bret Stephens, finance manager at White's Queen City in Spearfish, said. "But if you're creditworthy, it's really easy to put a loan together."

Now more than ever, good credit is the key to a good loan, according to Patty Hogan, district manager and vice president of U.S. Bank in the Rapid City main office.

"Today, the main thing they need is to really keep their credit clean," Hogan said. The bank, she said, is still lending to people with good credit who can make their payments and have stable employment.

"The conditions have changed. It's not as loose as it was," said Pat Burchill, U.S. Bank regional president in Rapid City. "There have been some lessons learned. Very expensive lessons."

Fortunately, U.S. Bank avoided some of what Burchill calls "creative" financing when things were hot. That means the bank is open for business, despite the conditions of the markets.

Banks across the state seem to be in the same condition, said Curt Everson, president of the South Dakota Bankers Association.

"I think if there is a consistency, there has just been a general tightening," he said. "You've got a lot of issues at play that are making banks look at their capital position and examining their lending practices."

Beside smaller loans to fewer people, the tight credit markets could have a deeper impact on car dealerships, Hogan said.

As the auto market slows, trade-ins will become less valuable, especially if a buyer financed it with little or no down payment.

"You're going to take some buyers out of the market," Hogan said.

Already, dealers and automakers are feeling the heat. Ford, Toyota, Chrysler and Nissan all posted drops in sales of more than 30 percent in September.

Sales of General Motors Corp. vehicles dropped only 16 percent, likely boosted by the company's offer of employee pricing. The promotion boosted sales locally despite tighter lending, Jerry Mansfield at Rapid Chevrolet-Cadillac said.

So although the credit crunch's effect on dealers and automakers isn't yet certain, one thing is for sure: It's back to basics for lenders as well as car buyers who need a loan, Marnie Herrmann, senior executive vice president at Security First Bank in Rapid City said.

"I see a little bit of a return to the old days, a more conservative approach and more thoughtfulness about acquiring debt," she said.

Contact Fugleberg at 394-8421 or jeremy.fugleberg@rapidcityjournal.com

Improve your credit score:

* Pay your bills on time.

* If you have missed payments, get current and stay current.

* Keep balances low on credit cards and other "revolving credit."

* Pay off debt rather than moving it around.

* Re-establish your credit history if you have had problems.

* Note that it's OK to request and check your own credit report.

* Apply for and open new credit accounts only as needed.

* Have credit cards but manage them responsibly.

Source: myfico.com

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