GMAC rescue = easy credit. Not so fast

GM's auto finance affiliate is open to more customers but the deals may not be so sweet.

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By Peter Valdes-Dapena, CNNMoney.com senior writer

What was the biggest business news story of 2008?
  • Auto industry meltdown
  • Bailout of Wall Street
  • Foreclosure storm
  • Oil price's wild ride
  • Stock market meltdown
  • It's official: U.S. in recession

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New York (CNNMoney.com) -- Now that it has received $6 billion in aid from the federal government, GMAC, General Motors' auto financing affiliate, is easing up its terms for writing new auto loans. That means you could have an easier time financing a GM car, but you should still look at all your alternatives.

In October, GMAC stopped offering auto loans to consumers with credit scores lower than 700. That meant only those with the best credit could get a car loan from GMAC under any terms.

Now, those with "just average" scores - or even a little worse - can qualify for a GMAC car loan. GMAC will now lend money to car shoppers with FICO credit scores as low as 621, which is generally considered to be the limit below which borrowers are considered subprime, said GMAC spokesman Michael Stoller.

At the same time, GM (GM, Fortune 500) itself has announced a new 0% financing incentive on some of its cars and SUVs. The 0% offer applies to "qualified buyers," of course, and it's only available on Saabs and on the Chevrolet Trailblazer and GMC Envoy SUVs, none of which are popular products right now.

Low interest rate loans, though not 0%, are available on some popular models like the Cadillac CTS, Pontiac G6 and Chevrolet Malibu. Again, though, the low rates are for "qualified buyers."

While this may make it easier to get a car loan from GMAC, if you're still in the market and your credit isn't the best, you'll still want to shop around to make sure it's the loan you really want.

How long will the loans be?

Before the credit crisis hit this year, extra-long car loans had become a big industry trend. Longer loans mean more money ultimately spent on interest, but smaller monthly payments.

Already, loan terms have been dropping industry-wide. The average auto loan in November was for 62 months, two months shorter than in November 2007, according to data from the Power Information Network.

Most GMAC's loans will be for less than 60 months said GMAC spokesman Michael Stoller. Loan terms will depend on the individual customers' creditworthiness.

Shorter loans aren't such a bad thing, though. Long loans carry big risks for consumers in addition to costing more money. People who finance cars over six or seven years may decide they need a new car before then. But when they go to trade the car in, they're likely to find they still owe more on the car than the car itself is worth.

In the past, that sort of situation would lead to another long loan as the remaining amount due on the trade-in was financed in the new loan contract.

How much of a down payment do I need?

The down payment that you'll be required to make now depends on how much of the value of the car you'll be able to finance.

GMAC officially caps loans at a maximum of 100% of the sticker price, said GMAC spokesman Michael Stoller, but that could be less depending on a customer's individual credit history, of course.

While those with spotless credit could always get a car loan from GMAC even they often found the terms difficult to swallow. For one thing, some dealers reported that strict down payment requirements meant that even customers who got loans couldn't afford to buy.

Also, those who owed more on their trade-in than the trade-in was worth couldn't throw that additional cost - the remaining balance on the trade-in - into the new car financing contract. But for customers with lower credit scores, high down payments could be a hurdle even for those with no additional auto debt to finance.

What's the interest rate?

While GMAC will lend money to consumers with credit scores as low as 621, it remains to be seen at what interest rates that will be. You might still find that, especially if you don't qualify for one of those special incentives rates, other lenders may offer a better deal.

As always, check around with other lenders, including local banks and credit unions, before shopping for a car. Ideally, you should have alternative financing ready to go before you enter a dealership.

Especially if you're a creditworthy customer, GMAC may, once again, be your best bet but if you're not in that league it could pay to shop around. To top of page

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