Credit Acceptance Corp. grew its origination volume 18.5% year over year in the first quarter but continues to forecast lower collection rates for the loans it’s originating, the company reported in earnings today.
The company originated 112,345 auto loans in the first quarter ending in March, up from 94,809 the same period the year prior. Credit Acceptance also noted volume growth of 25.3% in April alone.
However, Credit Acceptance expects to collect on just 63.6% of the amount owed on that pool of loans — the lowest initial forecast it’s posted in the past nine years.
As a result, more of Credit Acceptance’s dealer partners are opting for up-front cash deals as opposed to relying on income from collections on the loans over time. Nearly 30% of the lender’s loan volume was from its purchased loans program — which only offers a cash advance to dealers — compared with 27% the same period the year prior.
Still, Credit Acceptance is growing its dealer base with 911 more active dealers in the first quarter than it had the same period the year prior. The average dealer in that network sold 12.8 loans in the quarter up from 12.1 in the comparable quarter.
Despite these lower collection rates, Credit Acceptance brought in $71.5 million in profit for the quarter up from $58.5 million the same quarter the year prior.
“Forecasting collection rates accurately at loan inception is difficult,” the company said in the report. “With this in mind, we establish advance rates that are intended to allow us to achieve acceptable levels of profitability, even if collection rates are less than we initially forecast.”
Additionally, Credit Acceptance is funding larger loan amounts at longer terms. The average amount financed rose 7.3% year over year to $21,719. Average loan terms extended to 57 months long in 2018, up two months longer than in 2017.