Brien Joyce
Vice President
EFG Companies
The results of a new poll released in May by The Associated Press-NORC Center for Public Affairs Research state that two-thirds of Americans would have difficulty coming up with the money to cover a $1,000 emergency. According to the poll, this spans all income brackets with 75% of people in households making less than $50,000 a year, 67% of those in households making between $50,000 and $100,000, and 38% of households making more than $100,000 all stating they would have difficulty coming up with $1,000 to cover an unexpected bill.
The poll also states that one of the main reasons for this lack of savings is lack of wage growth. 46% of workers said their wages remained stagnant in the last five years, and 16% said they’ve seen salary cuts. During this time, costs for basic needs such as food, housing and health care have risen.
Furthermore, the poll found that a third of Americans would borrow from a bank, friends, or family, or put the bill on a credit card to pay for it. 13% would skip paying other bills and 11% would not pay the bill at all.
For auto finance, this information definitely helps explain the rising default and delinquency rates, especially among subprime loans. Most lenders right now are poised with their hand over the trigger to tighten lending requirements should the need arise. Rather than waiting for the market to demand significant change, smart lenders are being proactive about addressing pressing consumer needs to protect their loan portfolio.
Based on aggregated claims data for 2015, EFG found the average vehicle repair bill to be $937.83, just shy of $1,000. Meanwhile, with a high-tension political season, it can be expected for economic change to begin occurring in Q4 of this year. Savvy, post-recession consumers understand the difficulty this puts them in and want to work with companies that offer them services to help protect them from life’s uncertainties. By offering complimentary consumer protection products on loans, such as a vehicle service contract or vehicle return protection, lenders have the unique opportunity to both increase loan volume and protect their loan portfolio.
With a vehicle service contract, should consumers face that unexpected vehicle repair bill, they won’t have to choose between making their auto loan payment or repairing their vehicle. This helps consumers keep their vehicle, while maintaining their household budget.
With vehicle return protection, should consumers lose their source of income due to involuntary unemployment, physical or mental disability, critical illness, etc., they have the ability to return their vehicle to the selling dealership and cancel up to $7,500 of negative equity, relieving consumers of their lease or loan obligation with no impact to their credit. This ensures your loan is fulfilled while also protecting consumers from unpredictable life events.
Beyond reducing risk, offering consumer protection products on your loans allows you more control on product pricing for compliance purposes, 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 choose for all credit tiers. When choosing between your financial institution and another with the same rate, the loan with protection products and the opportunity to increase dealer profit through upgrades will have a competitive advantage.
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.