Credit Acceptance Grows 72-Month Loans, as Historical Data Accumulates

Credit Acceptance Corp.’s average loan term rose in the first quarter to 54 months — the longest it’s been since 2008 — as the company became more comfortable with its 72-month loan program, Chief Executive Brett Roberts said on the company’s first quarter earnings call last week.

“We’re just writing larger, longer-term loans than we had previously,” he said. The deep subprime lender’s program advances money to dealers based on the forecasted performance of the loan over time.

However, since Credit Acceptance began funding 72-month loans in 2015, it only has data on two years of performance to calculate its forecasts, Roberts explained on the call. Because the company has more data on 60- and 66-month loans, he doesn’t think it’s a “stretch to be able to forecast those [72-month] loans with a high degree of accuracy.”

The lender has full performance data for 80% of the loan terms it has underwritten, but only 30-to-50 months of history on the longer term loans. “For the 72-month loans, we have to do a little bit of estimation,” he said. “So there’s a little bit more risk there.”

The performance on those loans is somewhat “speculative,” but the longer terms are necessary for the company to compete in the indirect market, John Hecht, managing director at Jefferies LLC, told Auto Finance News.

“As they stepped into that market — which is a growing part of their book — in order to compete they had to take extended terms,” he said. “I think the best outcome will be that competition erodes or abates in the next few quarters, and they’ll become more of a price maker than a price taker.”

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