The most recent quarterly report by Experian, one of the three major credit bureaus, revealed that not only are interest rates dropping to pre-recession levels, but the average credit score needed for approval for new or used cars dipped during the first quarter of 2012 as well. The average score necessary for new car financing dropped by about six points to 760, and drivers seeking used vehicles now need an average score of about 659, four points lower than in the last quarter of 2011.

"Our report shows automotive lending is as healthy as it's been since the market bottomed out in 2008. With consumers doing a good job of paying back loans on time and the percentage of dollars at risk reaching its lowest point in six years, lenders are able to extend terms and provide lower rates," said Melinda Zabritski, Experian's director of automotive credit. "This thawing of the credit pipeline has been good for everyone, from consumers to lenders to automotive retailers."

The report also indicated there was an 11.4 percent increase in the number of car loans being approved for nonprime, sub-prime and deep-subprime lenders. This means more individuals with less than ideal credit are being approved despite their poor credit history. In large part, the increase of bad credit car loans is due to lenders being more understanding of people falling on hard times during the recession. Many Americans relied on credit cards to get by when the economic environment was unstable. Lenders are taking this into consideration and looking at other aspects of loan applications, such as salary and job history, before making a decision.

While the average interest rates declined, according to the report, those with less than perfect credit history may still be given high interest rates. This is often a necessary evil, but one that can help individuals rebuild their credit scores. Making timely payments on auto loans and other bills can help rebuild credit. Once enough time has passed, consumers can use auto loan refinancing to renegotiate the terms of their loan and potentially reduce the interest rates.

The most recent quarterly report by Experian, one of the three major credit bureaus, revealed that not only are interest rates dropping to pre-recession levels, but the average credit score needed for approval for new or used cars dipped during the first quarter of 2012 as well. The average score necessary for new car financing dropped by about six points to 760, and drivers seeking used vehicles now need an average score of about 659, four points lower than in the last quarter of 2011.

"Our report shows automotive lending is as healthy as it's been since the market bottomed out in 2008. With consumers doing a good job of paying back loans on time and the percentage of dollars at risk reaching its lowest point in six years, lenders are able to extend terms and provide lower rates," said Melinda Zabritski, Experian's director of automotive credit. "This thawing of the credit pipeline has been good for everyone, from consumers to lenders to automotive retailers."

The report also indicated there was an 11.4 percent increase in the number of car loans being approved for nonprime, sub-prime and deep-subprime lenders. This means more individuals with less than ideal credit are being approved despite their poor credit history. In large part, the increase of bad credit car loans is due to lenders being more understanding of people falling on hard times during the recession. Many Americans relied on credit cards to get by when the economic environment was unstable. Lenders are taking this into consideration and looking at other aspects of loan applications, such as salary and job history, before making a decision.

While the average interest rates declined, according to the report, those with less than perfect credit history may still be given high interest rates. This is often a necessary evil, but one that can help individuals rebuild their credit scores. Making timely payments on auto loans and other bills can help rebuild credit. Once enough time has passed, consumers can use auto loan refinancing to renegotiate the terms of their loan and potentially reduce the interest rates.

A federal judge in Washington D.C. recently backed a decision by the Federal Trade Commission (FTC) that will require lenders to help consumers obtain and understand their credit reports, according to The Detroit Free Press. This provision already existed under the Fair Credit Reporting Act, but the National Automobile Dealers Association (NADA) protested, claiming auto lenders were exempt, according to the news source.

NADA sued the FTC, claiming they were only seeking clarification, but the ruling came out in favor of the FTC and the consumer. Now, lenders will be required to supply loan applicants with information pertaining to how the lender acquired the credit report as well as how the consumer can get a copy on their own and handle any incorrect or missing data.

"This ruling will make it easier for consumers to learn about unfavorable information in their credit reports," Stuart Delary, acting assistant attorney general for the civil division, told the news source. "The auto dealer is in the best position to provide this information because the dealer interacts directly with the consumer."

BusinessWeek reports this ruling will benefit a consumer with a bad credit car loan, as the lender will have to explain the reason for the higher interest rate. Consumers should bear in mind this will not necessarily help them get a lower rate, but they may be able to find errors in their credit reports that could improve the score once corrected. Consumers are also able to obtain one free credit report each year from AnnualCreditReport.com.

In most cases, the only way to fix credit is to make timely payments on loans and credit card bills. Once a score has increased, consumers can apply for auto loan refinancing to renegotiate the terms of the loan.

"Auto loan delinquencies continue to perform exceptionally. This can be attributed primarily to growing demand for both new and used vehicles and higher used vehicle values, which equates to an increase in equity for consumers," said Peter Turek, automotive vice president for TransUnion's financial services business sector. "We are seeing increases in both lending and leasing across the board, along with a higher number of loans originated in the non-prime segments."

Non-prime segments include individuals with less than ideal credit, which means a consumer has a better chance of being approved for a bad credit car loan. However, a lower credit rating will lead to higher interest rates. Avoiding delinquencies and making timely payments can help borrowers to improve their credit scores. Over time, the improvement can be enough that drivers can consider auto loan refinancing to renegotiate the terms of their loan. This can allow them to get a lower interest rate and adjust the payments so they are paying less each month.

When delinquency rates are low, lenders are more likely to approve borrowers, making this a good time for anyone looking to get behind the wheel of a vehicle. It is important for consumers to keep in mind the importance of being able to make payments on time so they do not damage their credit. When considering a car loan, drivers should take into account other expenses of car ownership, including maintenance and repair bills, insurance payments and the cost of fuel. This will help them stay within their budgets so they don't default on their loan payments down the line.

How are the scores calculated?

Your credit score is generated by examining credit history, according to MyFICO.com. This takes into account a number of factors – payment history, amount of debt, length of your credit history, types of credit and amount of new credit. When it comes to payment history, different factors can be reflected in your score, from missed and late payments to delinquent accounts and those paid in full and on time. Depending on how far back your credit history goes, the categories will carry different weights in calculating a score.

What do the numbers mean?

FICO credit scores range between 300 and 850 – the higher your number, the better your credit. Typically, a score over 700 is considered "very good," and consumers in this range stand the best chance of getting low interest rates on loans. Those with "good" scores between around 680 and 699 will be offered moderately higher interest rates that are still considered good, according to Bad-Credit-Advisor.com. A FICO score in the range of 640 to 679 is considered "OK." When your score is between 620 and 639, it is considered "not so good," but you're still close enough to the "OK" range that you'll be able to repair your standing quickly by making timely payments on your loan.

Anything below 619 is considered poor. In this case, lenders may still approve you for a loan but the interest rates are likely to be higher. You may need to stick with the higher rates for a while as you rebuild your score. After a while, the score will climb to a new range and you can renegotiate the terms of your loan to get better rates.

One of the main reasons the auto industry has seen such a remarkable recovery is the dramatic drop in the jobless rate. Unemployment rates are lower than they have been in about three years, and this helped raise consumer confidence, the Detroit Free Press reports. When consumers are confident in the economy, they are willing to spend more and make bigger purchases they may have been putting off when conditions were less than ideal.

"What happened to the unemployment rate is really the linchpin," Jonathan Basile, an economist from Credit Suisse in New York, told the news source. "When people are not as concerned about losing their jobs, they tend to be a little bit more comfortable making decisions on parting with their money."

The U.S. Federal Reserve also agreed to keep federal interest rates low through 2014 at the very least, CNN reports. This means lenders have been more willing to approve consumers for auto loans. During the recession, it was difficult for even those with near-perfect credit to get approved for loans. Individuals with poor credit barely stood a chance, but now their odds of getting a loan are greatly improved.

When federal interest rates are lower, lenders are able to offer consumers better rates as well. The increase in consumer confidence and overall economic improvements have also led lenders to be more understanding of a poor credit score. However, those with less-than-ideal credit scores may not be able to get the best deals. Yet, as long as these individuals make timely payments on their loans, their credit will begin to improve. After some time has passed, drivers can apply for auto loan refinancing and renegotiate the terms of a loan to seek either a lower interest rate or reduce monthly payments by spreading them out over a longer period of time.

"Midsize sedans continued to dominate industry sales in April, accounting for 19.5 percent of all vehicles sold in the month," said Alec Gutierrez, senior market analyst of automotive insights for Kelley Blue Book. "With attractive incentives, ample inventory and the availability of fresh new product, sales in this segment remain strong."

Drivers looking to purchase a fuel-efficient used car with an auto loan will be happy to know prices for used vehicles have peaked along with the cost of fuel. KBB predicts the average price of used subcompact, compact and hybrid models will drop about 1 to 2 percent over the summer and remain steady through the final months of the year.

The report indicates the fluctuation of gas prices and used car pricing are similar to patterns from 2008 and 2011. Should the rest of the year match the price changes of years past, the report indicates cars like the Chevrolet Sonic and Hyundai Elantra will become more affordable.

The anticipated drop in price, combined with low interest rates make this summer a good time for consumers shopping for fuel-efficient vehicles with car loans. However, those looking for mid-size trucks and SUVs may not have such an advantage. Gas prices are still high enough to keep drivers away from the large truck segment. Instead, KBB anticipates drivers who want larger vehicles will turn to SUVs and midsize trucks.

"Among used vehicles, mid-size trucks offer better fuel economy at a lower price point without sacrificing too much utility," said Gutierrez.

However, there could be an increase in demand for such vehicles, which could drive up their price. Drivers who want to purchase mid-size trucks or SUVs may want to do so soon to beat the crowds.

"The subprime market has come back to life, where it was non-existent a few years ago," Dave Wescott, vice-chairman of the National Automotive Dealers Association, told the news source.

There are a few reasons more people are being approved for car loans these days. Lower federal interest rates have been important in increasing the availability of loans for more consumers. Lenders are also taking the recession into consideration when deciding whether to approve a borrower. They are looking at other factors than credit scores, such as income, to decide if an individual will be able to make payments on a loan.

"Having looked at over 5,000 loan applications, credit score is not the best indicator of people's ability to repay," TrueCar.com analyst Jesse Toprak, who previously operated financing departments at car dealerships, told the news source.

High demand for used cars has been another key component driving the auto loan market, CNN reports. Lenders are willing to take on subprime borrowers because the value of their cars will be high enough to recoup lost expenses if a borrower defaults on payments and their vehicle is repossessed.

There are ways to avoid defaulting on loans if you're having trouble making payments on time. One way is to refinance your loan. This allows you to negotiate new terms and you may be able to lower your monthly payments. You should also take precautionary measures to prevent this issue from coming up. When you are planning to purchase a car, you should determine how much of your budget can be dedicated to monthly loan payments. It is important to take into account the other expenses associated with car ownership, such as gas, insurance and maintenance costs.

Do credit checks affect your score?

A series of credit card applications in a short period of time can appear to lenders as a risk and also negatively impact your score. Credit scores fall between 300 and 850, and FICO states that credit inquiries generally result in a drop of five points or less but vary depending on individual credit status. While one or two inquiries will not have a major impact, they can easily add up if you apply for credit cards on numerous occasions.

Do previous credit checks affect your chances of getting approved?

This is a tricky question, and the answer depends on your overall credit standing. If you have applied for numerous credit cards and loans in a short time period, a lender may not be bothered as long as your history shows you are capable of making payments on time. However, if you've missed a number of payments or are using a substantial percentage of your credit line, a lender may be less willing to take a chance by loaning you money. However, bad credit car loans are often an alternative. They have higher interest rates to account for the risk the lenders are taking, but this is a great place to start rebuilding credit.

How can you improve a credit score?

The best way to improve your credit is to make monthly payments on time and in full. Your credit score won't improve overnight, but sticking to your budget and paying your bills is the best way to rebuild credit. After a few months, you have the option of auto loan refinancing. At this stage, the remainder of your car loan can be renegotiated. A lender will perform a new background check, and if you've stayed on top of your payments, they'll likely be able to offer you better terms on your loan.

"I don't think you need to have the 800-plus FICO score that was probably necessary in 2009," Alec Gutierrez, senior market analyst for Kelley Blue Book, told the news source.

Why has it become easier to get approved?

Rather than simply examining the numbers, lenders are also considering the reasons for missed payments. The recession caused many to fall behind in mortgage payments and rely more on credit cards, both of which can negatively affect credit scores. When a person applies for an auto loan, the lender is now more likely to write these missed payments and high credit usage as a necessary evil that does not reflect on a person's current ability to make timely payments. The news source indicates lenders also take a person's income into consideration to determine whether they are acceptable candidates for loans.

The downside of a bad credit auto loan

While a driver's odds of getting approved are much higher now than in years past, a poor credit score will likely result in higher interest rates than if the individual had a perfect score. This means their monthly payments may be larger than they'd prefer. It might also take longer to repay the loan.

The light at the end of the tunnel

If a driver's loan interest rates are high due to poor credit, the best thing to do is make monthly payments on time and in full. This will help rebuild credit and after a short period of time, the consumer can apply for auto loan refinancing. The terms for the remainder of the loan can be renegotiated to secure a lower interest rate.