By Jeff Karg
While there are various types of devices offered by various device providers for BHPH and subprime lenders, they are often thought of as all doing the same thing. However, there are really two distinct models at work when choosing devices. One is the collection model; the other is the repossession model. Several factors can help you determine which model works best for your business and your goals.
The Repossession model
The tool most typically used for the repo model is GPS tracking devices. The idea is that if the customer defaults on the loan, the lender wants the ability to get the vehicle back as quickly as possible, recondition it and resell it to another customer. The faster and easier that process is, the more money the dealer makes. If the dealer can recovery their initial cost for the vehicle before the customer defaults on the loan, and can quickly recovery the vehicle using GPS, the subsequent resale of the vehicle is nearly all profit.
The Collections model
The idea behind this model is to keep the customer making their payments on time, keeping them in the vehicle, and helping them stay current. Within this model, the customer’s payment behavior improves, resulting in better cash flow for the dealer and a better performing portfolio. A Collection Technology device is a proactive system that reminds the customer when their payments are due. While these devices are not fool proof, they typically result in a lower delinquency rate for the portfolio, improve cash flow for the lender, and help keep the customer in the vehicle.
Consider various factors within your overall business model to decide which device technology is best for you. One consideration should be whether or not you plan to sell your portfolio to a finance company. Some dealers hold their own paper throughout the life of the loan. Others keep the loans for a while before selling them off. For those dealers who sell off their paper, they know that the better performing the portfolio, the higher the price they can expect. Finance companies will look at the performance of the portfolio overall and, in many cases, factor in if the loan has a device associated with it as well.
Jeff Karg, director of corporate communication, PassTime USA, can be reached at [email protected].