President
Simplicity Division
EFG Companies
According to a recent survey from Bankrate.com, 63 percent of Americans say they are unable to handle a $500 car repair bill; and, only one out of five consumers making less than $30,000 said they had enough emergency savings set aside to handle an unexpected bill.
In addition, a Pew Charitable Trusts study found that six out of every 10 American households reported experiencing a financial shock during the last year, with major car repairs and lost income ranking among the most common.
What does this tell us? That those rosy figures of economic growth don’t match the current financial stresses of Americans. The fact is, with inflation increasing the costs of food, healthcare, clothing, utilities, etc., and slow wage growth, many Americans are finding it more difficult to pay in to their “rainy day fund”.
What does this mean for auto finance? Well possibly that lending requirements and terms need to be re-evaluated based on today’s world. A person’s FICO score may not accurately portray their current ability to make payments today. After all, FICO scores only take into account past payment activity, when lenders may need to know quite a bit more, like savings and an accurate portrayal of how much today’s borrowers have in the bank after all monthly bills are paid.
In fact, according to the Wall Street Journal a variety of Silicon Valley-backed lenders are looking beyond credit score for this very reason, challenging the usefulness of a rating that does not take into account current challenges for American consumers.
However, lenders can better insulate their loans from the possibility of delinquency and default with consumer protection products that help consumers stay current on their loan obligation, while also handling an expensive car repair, or even job loss.
Products, like a vehicle service contract or vehicle return protection, are designed specifically to protect consumers from the negative impacts of unexpected repair bills or job loss. A vehicle service contract often cuts that $500 repair bill down to a $100 deductible that is much more manageable within household finances. Vehicle return protection allows consumers to return their vehicle should they experience certain life-changing circumstances, like involuntary job loss, without impact to their credit.
Beyond reducing risk, offering consumer protection products on your loans allows you more control on product pricing and gives you a driving differentiator with your dealership clients. With heated auto finance competition, dealerships have a variety of lenders from which to choose for pretty much any credit tier. When choosing between your institution and another with the same rate, the loan with protection products and the opportunity to increase dealer profit through upgrades will have quite a leg up on the competition.
With almost 40 years of auto retail experience, EFG Companies knows how to enable you to increase your loan volume, gain more control over product pricing, reduce delinquency rates, and differentiate your institution with dealers and consumers alike. Contact us today to take your business to the next level.