Tag: Delinquency

Categories
Economy

Dealing with Delinquency

Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

A good portion of Experian’s latest State of the Auto Finance Market Report revolved around alleviating industry concerns that the auto market is looking more like it did right before the Great Recession. If you’ve been paying attention to headlines lately, you know that economists are worried about how quickly the subprime market is expanding and are asking if there will be another bubble to pop.

With those concerns in mind, lenders are especially concerned with the upward trend in auto delinquency. According to Experian’s report, finance companies experienced a 2.6% year-over-year increase in 30-day delinquent loans with a total balance of $6 billion. In addition, the top 10 states with the highest delinquency rates account for 32% of the total amount of delinquent loans.

With strong subprime growth and increasing delinquency levels, smart lenders are looking at how to level out their delinquency rates, or at least protect their loan portfolio from this growing risk. While some would argue that the best way to pad the portfolio is by increasing APR, there is another option that benefits the lender, the dealer and the consumer. That option is the use of complimentary consumer protection products.

With consumer protection products, like a vehicle service contract or vehicle return protection, consumers are protected from the high costs associated with a vehicle breakdown, or from the negative financial repercussions of instances like involuntary job loss. This same consumer protection also protects the loan. How? Consumers can continue to make loan payments if they don’t have to reallocate funds to cover costly mechanical repairs or cover living expenses on an unemployed budget.

Dealerships also benefit by setting up the F&I product presentation with a description of the benefits consumers will receive with their loans. This offers F&I managers an excellent springboard into presenting upgrade options or additional products to further protect the consumer. Your loan will essentially turn the conversation from strictly a sales presentation to a rewarding and productive discussion about the benefits of consumer protection products, and the value the dealership is providing.

Don’t feel like your only course of action to combat delinquency levels is to raise rates. Pair your loans with complimentary consumer protection products. They can help protect your loan portfolio, while also protecting your customers and providing your dealership partners with the ability to make additional F&I income.

With almost 40 years of experience in innovating compelling consumer protection products, EFG Companies knows how to strategically place the right product mix with your loan to achieve greater loan volumes. Find out how today!

Categories
F&I

Funding Riskier Loans? Reduce the Risk with Your F&I Products

Contributing Author: Brien JoyceSubprime auto lending started booming again in late 2009, early 2010. And 2013 has been no different. According to Standard and Poor’s, the average loan-to-value ratio on vehicle sales to consumers with spotty credit has risen to 114.5 percent this year, from about 112 percent in 2010. As evidenced, you’ve probably seen a sharp increase in competition this year. Well, it’s only going to get more competitive, pressuring your margins and risk.

How do you plan to reduce the risk of these loans without affecting the discipline of your underwriting practices?

Have you ever considered that the finance products tied into your loans could also reduce risk?

With programs like vehicle return from EFG Companies, it is now possible to not only make your loans more attractive to dealerships and car buyers, but may also reduce loss on defaults or delinquencies.

Vehicle return programs maintain a proactive risk-management strategy that may decrease repossessions and collections costs while enhancing loan volumes and increasing finance control.

For example, the basic level of a vehicle return program offered by EFG covers a consumer’s negative equity up to $7,500 as long as the consumer meets the criteria for the claim and returns their vehicle to the dealership. Covered circumstances include loss of income due to involuntary unemployment, physical disability, loss of driver’s license, international employment transfer, self-employed personal bankruptcy and accidental death.

How does this help you?

Let’s look at the benefits of a single vehicle service contract before looking at the broader picture. Imagine if you will, an F&I manager closing a loan with 6 months complimentary vehicle return on a car with the MSRP at $20,000:

  • The consumer did not put a down payment on the car, so they are driving off the lot with a $20,000 loan.
  • The consumer makes four monthly payments of $500 and subsequently loses their income via one of the covered circumstances. At this point, the loan balance is 18,000.
  • The customer returns the car to the dealership, which buys the car back at its current market value, $13,500.
  • Then vehicle return benefit kicks in, paying the lender the remaining balance on the loan, $4,500. The loan never defaults, the consumer’s credit remains intact, and the lender reduces any potential recovery expense.

What if the loan did not have vehicle return? You know the recovery and liquidation costs.

This scenario does not even include upgrade options such as payment relief, which further secures the loan.

Fortify your loans and protect your margins by strategically choosing F&I products to pair with your loans. Strong finance products not only generate more loan applications and approval, but also may help protect you by reducing risk.

Find out more on how you can potentially reduce the impact of loss while increasing profits at the same time. Contact EFG today!

Categories
Economy

Why Should They Choose Your Loan?

Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

The Challenge: Differentiation!

According to the latest State of the Automotive Finance Market Report, nonprime, subprime and deep-subprime new vehicle loans increased to 27.5 percent market share in Q2. This is a 25.4 percent year-over-year increase. In addition, nonprime, subprime and deep-subprime used vehicle loans experienced a 54.5 percent year-over-year increase in Q2 market share.

But with the good, comes the bad. As loan volume increases, lenders are presented with two challenges: increased competition and higher delinquency rates. With an influx of financial institutions putting together sub-prime financing packages and June auto loan delinquencies increasing by 5.5 percent, it’s important to ask how you are tackling these challenges presented by an expanding market.

Consider this:

Loans that offer complimentary consumer protection products can help you address the challenges of increased competition and delinquency control, while also providing additional streams of revenue.

Said another way:

The dealerships you work with have a variety of other subprime lenders from which to choose. What do you have to incentivize F&I managers to present your loan offering to their customers? Why should the customer choose your loan offering? You can’t always offer the lowest rate, so what makes you different?

Financing options offering complimentary F&I products with upgrade opportunities provide significant benefits to all parties involved.

  • Benefits to F&I Managers: Starting the F&I process with a loan paired with complimentary consumer protection products puts the F&I Manager in a positive position with their customers, enabling them to sell consumer protection products as upgrades, thus improving profit potential.
  • Benefits to Consumers: Consumer protection products allow consumers to avoid unexpected expenses that may inhibit their ability to make their car payment.
  • Benefits to Lenders: Upgrade options provide increased potential for profit opportunity for lenders, and by protecting the customer, mitigates loss exposure.

With over 35 years of consumer protection product insights, EFG Companies works side-by-side with subprime lenders like you to administer the right mix of F&I products providing the greatest return to you and your dealership partners.

Don’t You want to know how?