Subprime 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!
