subprime lenders | Lending Curve

Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

With the auto loan market leveling out, and analysts predicting a more modest pace of growth in 2015, what are you doing to increase your market share?

Recently, both Experian and Equifax stated that a subprime bubble has not formed because of the lending community’s control over the pace of market expansion. However, neither entity recommends loosening credit standards, but rather maintaining control or even tightening restrictions as the year plays out. This places limits on traditional means for subprime lenders to compete. However, a more level market also means there is more opportunity to gain prime consumers while balancing risk.

In the same way that many prime lenders welcomed subprime consumers in the aftermath of the Great Recession, smart subprime lenders are looking to expand in the near-prime and prime spaces. In fact, Equifax found that over a three-year time period, consumers with deep subprime credit scores who took out a subprime auto loan were four times more likely than those without an auto loan to improve their score to a level above 640. In aggregate, subprime consumers with auto loans improved their credit score by a median of 52 points, which is a 62.5% improvement over the median score change of the group that did not take out a loan.

However, for dealers, keeping those customers is no small feat. Ask yourself the question: how am I helping my dealer partners in their customer retention efforts?

This starts from the very moment the dealer contacts the lender to initiate an auto loan. With consumers demanding a shorter car buying process, F&I mangers need swift loan approvals to keep the process moving. So ask yourself, how am I facilitating quick approvals?

With the government shutdown and impending national default, companies and consumers alike are avidly watching for updates on the status of the economy. Will it plunge? No one knows and everyone is talking about it.

But look at it this way, there have always been ups and downs and there always will be. Rather than letting the rollercoaster take you for a ride, concentrate on what you can do to consistently increase loan volume.

Whether the market is on an incline or going through a loop-de-loop, your auto loan is compared with three to five competitors. What do you have to offer to ensure an application pulls through into a loan?

Competing on rate alone puts pressure on your margin and sets a benchmark for a competitor to come in and meet it or beat it. The key to consistently pull through loans is to concentrate on your efficiencies:

Superior Service

How quickly does your institution respond to an application?
Are your loan officers courteous and respectful when speaking with dealership personnel?
Do you instill the value of providing superior service across your institution?

The Value Proposition

Does your loan make it easier for the F&I manager to upsell consumer protection products to boost their margin?
Does it provide consumers with value beyond interest rate that insulates them from significant impacts to their savings?

You’d be surprised how simply providing quality service establishes lasting relationships with both dealerships and consumers. By focusing on customer service, rather than just numbers and rates, you are more likely to close more loans and increase the number of dealerships presenting your loan.

But beyond customer service, providing tangible value to both your audiences puts you miles ahead of the competition. How do you do this? One of the best ways is with complimentary consumer protection products, such as a limited powertrain warranty or vehicle return.

Complimentary products such as these set the stage for upsell opportunity, making it possible to increase your margins as well as the dealership’s PRU. By providing a valuable service to the end-consumer, it’s easier to familiarize them with the benefits of the product and position the upsell as just another way to extend those benefits.

Of course, the savvy consumer will only believe in the products with the best reputation. That’s why it’s important to shop around for the best product administrator. Good administrators, such as EFG Companies, have established themselves in the industry as being customer-centric. When evaluating potential administrators, pay attention to their claims paid, and timeliness of payment. Administrators like EFG know that a good product doesn’t just benefit a lender, or just a dealership, it benefits everyone. And, they make sure everything from product development to administration and claims adjudication follows this principal.

So, how do you fortify your business to stay on track in a volatile economy? Focus on efficiencies within both your application processes and supplement your loan with consumer protection products backed by that same focus on efficiency.

Get off the roller coaster and chart your own course with EFG.