Tag: Experian

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Business Growth Economy

Choose: Compete or Manage Risk

Brien Joyce Vice President EFG Companies
Contributing Author:
Brien Joyce
Vice President
EFG Companies

Remember when you were shocked that average loan terms had increased to 62 months, then 68 months and so on? While the industry is no longer shocked by loan terms that last more than five years, lenders are now grappling with the reality that their borrowers are up-side-down on their loans for much longer periods of time while still making record-high loan payments.

According to Experian’s latest State of the Auto Finance Market report, the average new vehicle payment increased to $506 in Q4 2016, with an average loan term of 68 months and an average amount financed of $30,621.

Within 68 months, what do you think is the likelihood of a consumer experiencing something that would affect their ability to make their auto loan payment? Maybe their car breaks down or they lose their job. Your algorithms can probably tell you that the likelihood is pretty high. That’s why Experian has seen 60-day delinquencies rise in almost every State of the Auto Finance Market report issued in the past few years.

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Categories
Economy

Making Prime Hay with Pre-owned Financing

Mark Rappaport President Simplicity Division EFG Companies
Contributing Author:
Mark Rappaport
President
Sinplicity Division
EFG Companies

Experian’s latest State of Auto Finance Market Report made headlines recently, painting a rosy picture for the used-vehicle market. Overall, pre-owned vehicles accounted for 55.61 percent of all financing in Q2 of 2016. Consumers across all credit tiers are flocking to pre-owned vehicles, with super-prime and prime consumers accounting for 44.95 percent of all pre-owned loans, representing a 2.6 percent year-over-year increase.

While Experian highlighted the fact that more prime consumers had entered the market, to the discerning eye, the pre-owned vehicle market is still a subprime game. In fact, nonprime, subprime and deep subprime consumers accounted for 55.05 percent of all used loans in Q2 of 2016. And, just as consumers don’t quite know the true quality of the vehicle, or vehicle health, lenders are in the dark as far as vehicle reliability.

This unknown could lead to more vehicle repairs, a higher likelihood of breakdown, and even an increased risk of total loss. Add that to the fact that more than half of the pre-owned market is made up of risky credit tiers, and it’s pretty clear why auto lenders as a whole look to protect themselves with higher APRs for the pre-owned space.

Even Experian’s latest report reflects this trend with an average new APR of 4.82 percent and an average pre-owned APR of 8.97 percent.  However, with more prime and super-prime consumers entering the space, lenders will be hard-pressed to reduce their rates to be more in line with what those consumers are accustomed to in the new-vehicle space. So, how can lenders address this pressure to reduce their average APR for pre-owned vehicles while also protecting their loan portfolios as a whole?

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Categories
Business Growth

The Great Debate: To Take Action or To Wait

Mark Rappaport President EFG Companies
Contributing Author:
Mark Rappaport
President
EFG Companies

Subprime Analytics recently reported the largest reduction in subprime auto finance down payments since 2011. Subprime auto finance down payments experienced a 15% year-over-year decrease in 2015. While down payments are down, the amount financed is up. According to Experian, the average used vehicle loan amount for franchise and independent dealers increased to $18,424 in Q1 of this year.

With the combination of these two trends, it’s no wonder that average subprime loan terms have increased by 4.5% year-over-year since 2012, according to Subprime Analytics. Now lenders are looking to extend loan terms to 84 months.

What do these trends mean for the long-term? For the last year, industry analysts have been telling everyone to wait and see. But, when does waiting and seeing turn into putting our heads in the sand?

Rather than waiting for the market to turn, and reacting to the circumstances that arise, smart lenders are taking proactive steps now to protect their lending portfolios from potential market changes.

Now, you might think, “I don’t want to be the first lender to start tightening lending requirements and lose loan volume and market share.” The good news is you don’t have to jump the gun. Rather, take a step back and look outside the box for solutions that can protect your portfolio and increase loan volume.

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