Commerce Bank Entices Borrowers to Shorten Terms

Carrot on a StickDALLAS — Commerce Bank isn’t pulling back on its longest loan-term offering of 75 months, but it is “encouraging” deals at 60- and 48-month terms, as part of a larger effort to tighten overall credit requirements, said Robert Griffin, the company’s indirect lending manager.

To accomplish this, Commerce Bank is incentivizing consumers with lower interest rates on shorter-term loans, discouraging buyers with higher interest rates on longer-term loans, or — in some cases — doing both.

“[Encouraging shorter terms] has at least capped our average term, which was growing every year by at least one month, and has brought it back down to about 66 months,” he told Auto Finance New at CBA Live. “[Our average term] was at 69 months for a while, where everything was coming in through that 75-month program, so it has moved back down a little bit.”

The company is tightening underwriting also to prepare for a continued downturn in used-vehicle prices that are bound to impact Commerce Bank’s loss-per unit in its portfolio, which is 75% used-vehicle loans, he said.

The current industry trend of increased incentives and attractive lease programs tends to push the bank’s prime consumers toward the captives, he added.

“When we see new-car sales drop, it doesn’t necessarily mean overall sales are declining,” Griffin said. “If used-car buyers aren’t getting pulled into new vehicles, that’s a good thing for us.”

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