For any entrepreneur considering the auto finance sector, the options can seem daunting. Is the prime sector best? Maybe the yields in deep subprime make that niche more worthwhile?
These questions become more challenging, because every two auto finance executives will offer three definitions for credit tiers — if not more.
That’s why Charles Bradley Jr.’s recent definitions surrounding credit tiers and their current ranges for yield are so valuable. Bradley is the CEO of Consumer Portfolio Services, a publicly traded auto finance company and one of the industry’s old hands.
First, to the credit scores. Bradley breaks the market up into five credit tiers — unlike some lenders, who opt for four. Here are Bradley’s credit tiers:
| Credit Tier | Score Range |
| Super Prime | 740+ |
| Prime | 680-739 |
| Nonprime | 620-679 |
| Subprime | 550-619 |
| Deep Subprime | <=549 |
From there, questions turn to average APRs. It is not enough to know the credit tiers, but to also understand what APRs each of those tiers can generate. Again, Bradley offers some current guidelines average APRs, which he shared at the Auto Finance Summit in October 2014:
| Credit Tier | New APR | Used APR |
| Super Prime | 2.76% | 3.66% |
| Prime | 3.68% | 5.13% |
| Nonprime | 5.52% | 8.31% |
| Subprime | 9.39% | 14.53% |
| Deep Subprime | 12.76% | 18.62% |
Of course, there are other pricing factors to consider, such as loan-to-value ratio, vehicle type, debt-to-income ratio, payment-to-income ratio, down payment and loan term. However, these broad ranges for credit score and APR are a starting point for exploring profitable niches in auto finance. And, make no mistake, those niches are out there.
