Car Loans Inc. Pivots to New-Vehicle Financing
Car Loans Inc. is slowing its subprime loan volume as it shifts to “higher-quality vehicles” in response to an uptick in default rates, according to Chief Executive Max Haynes.
“We wanted to be careful because what we saw there were some issues in the marketplace, so we took action and slowed down [loan volume] a bit,” Haynes said.
The company piloted a new-vehicle financing program with a Dodge dealer in Nevada in March, because Car Loans Inc. anticipates more opportunity in the new-car market. The goal was to focus on “better quality vehicles with lower miles,” such as a base-model vehicle with a three-year bumper-to-bumper warranty, he added. “We are planning to expand that [new-vehicle finance program] into our next markets — areas like Utah and possibly surrounding areas — in the fall.”
“We saw that consumers were less likely to default with newer cars,” he said. “Initially, that’s holding true so far. A big part of the reason for defaults, in my opinion, is they might have had a small mechanical failure due to a reconditioned car, and instead of repairing it, they tend to walk away from the vehicle. The idea is rather than have them jump from vehicle to vehicle, let’s put them into a vehicle — and treat them with the dignity and respect — that a prime borrower gets, which is a new car.”
However, there is a challenge with switching focus to new vehicles, particularly for subprime consumers, and that is finding a vehicle that meets their needs, Haynes said. “There are a lot of bells and whistles out there on vehicles, such as navigation systems or backup cameras, all these upgrades,” he said. “A lot of the subprime market would like all those things, but we would prefer they were in a newer car that is dependable and reasonable with lowest possible interest rate.”
It’s important to put consumers in a “reliable car, not just a flashy car,” he added, but many millennials and subprime consumers “are not as determined to have the latest car, they just want some basic, reliable transportation.”
Car Loans saw a 50% decrease in defaults since slowing originations and piloting the program, he said. The company works with 30 dealers in Nevada and Utah. It plans to launch operations in Idaho by yearend.
