Subprime Analytics recently reported the largest reduction in subprime auto finance down payments since 2011. Subprime auto finance down payments experienced a 15% year-over-year decrease in 2015. While down payments are down, the amount financed is up. According to Experian, the average used vehicle loan amount for franchise and independent dealers increased to $18,424 in Q1 of this year.
With the combination of these two trends, it’s no wonder that average subprime loan terms have increased by 4.5% year-over-year since 2012, according to Subprime Analytics. Now lenders are looking to extend loan terms to 84 months.
What do these trends mean for the long-term? For the last year, industry analysts have been telling everyone to wait and see. But, when does waiting and seeing turn into putting our heads in the sand?
Rather than waiting for the market to turn, and reacting to the circumstances that arise, smart lenders are taking proactive steps now to protect their lending portfolios from potential market changes.
Now, you might think, “I don’t want to be the first lender to start tightening lending requirements and lose loan volume and market share.” The good news is you don’t have to jump the gun. Rather, take a step back and look outside the box for solutions that can protect your portfolio and increase loan volume.
One such “out-of-the-box” approach is the use of consumer protection products, like a vehicle service contract or vehicle return protection. Loans that offer complimentary consumer protection products can help you address the challenges of differentiating yourself from the competition and managing delinquency rates, while also providing additional streams of revenue.
As far as dealers are concerned, whether you provide complimentary products or not, they will want a lender that funds enough money for them to either increase their profit through upgrades or selling their own F&I products. Offering loans to dealers that help them achieve their goals has the potential to make you their preferred lender, meaning increased auto loan volume.
From the consumer side of things, subprime buyers tend to struggle with budgetary constraints. For example, when a significant mechanical breakdown occurs, these consumers often have to choose between paying for the repair or paying a monthly bill like their auto loan. A complimentary vehicle service contract or other related program could alleviate that cost, and potentially protect the loan from delinquency, thereby protecting your loan portfolio.
By providing dealers and consumers what they need, you can essentially set yourself up for long-term success. It’s a win, win, win! Rather than waiting to see what the market brings, take control of your financial future with consumer protection products.
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