Anyone who has spent time in a dealership showroom selling cars has had this same experience: A potential buyer comes in to look at the latest premium model, they spend time with the salesperson deciding the exact configuration and options they want and, during the conversation, the salesperson must decide whether to invest time and resources into finding a viable credit solution or to cut bait.
Though alternative lenders may have programs that can help in such situations, there often is an onerous underwriting process fraught with complex verification work that may not ultimately lead to a firm loan commitment. This time-consuming verification process keeps the salesperson from working other potential sales, so they move on instead.
It’s true that auto consumers are as varied as the makes and models for which they shop, but prejudging consumer loan potential based on “the old way of doing things” is a pitfall that can prevent customers from buying the cars they want — and cost salespeople sales.
The legacy auto lending industry required a FICO score and a Social Security number just to get started. Without them, the opportunity for a non-cash sale was all but dead, regardless of creditworthiness. But this is no longer the case. Today, there are better loan products for consumers who make good incomes and spend their money responsibly, but whose creditworthiness isn’t reflected in traditional credit scoring metrics.
In many cases, consumers who fall into this category include immigrants who are just getting a footing in the U.S. Because they may not have Social Security numbers or any existing credit, they won’t show up on traditional credit checks. But they often hold high-demand jobs that pay good salaries. They have the means to take on a loan and make payments — but not a credit scoring model that accounts for it.
Redefining creditworthiness
New lending products use proprietary algorithms to redefine creditworthiness, regardless of whether the customer has a meaningful credit history or any history at all. In fact, making use of these new products can often lead to firm approvals that offer better advances, more forgiving down payments, and significantly better interest rates than even many customers with long credit histories can achieve.
What’s more, new lending products take much of the onus off the salesperson and the F&I department and more meaningfully involve the customer in the approval process. Using their smartphones, customers can complete a simple income and credit verification process to finalize their applications. As a result, fast decisions and concrete approvals are the norm.
The added benefit is on the dealer side. Not only are more sales made possible, but F&I managers no longer need to suffer through the burden of a cumbersome verification process with uncertain funding delays and rejections.
The first step to capitalizing on such a vast amount of opportunity for dealerships, salespeople and customers alike is to avoid the trap of ruling out a prospective buyer based on their perceived creditworthiness, or an initial soft credit pull, and to consider every customer a viable buyer with a real ability to secure financing. The second step is to embrace the newest lending models and make use of them when the situation calls for it.
In the end, salespeople will build stronger customer relationships, improve the dealership’s overall numbers and reap the financial rewards that come with being a great salesperson who knows how to close a deal.
Matt Barber is vice president of product at Boston-based financier Lendbuzz, where he leads the design and development of the company’s credit decisioning platform, including comprehensive tools for consumers and dealerships across the loan lifecycle, from application to final payment.
