By Pete Radike
It wasn’t long ago that less-than-prime automotive lending was nearly synonymous with a lack of standardization and rules, and therefore void of consistency. However, as this niche industry ushers in a new subset of less-than-prime borrowers, both established and new lenders have emerged to meet their needs.
These new lenders are building business models based on enabling the success of not just their businesses but also their borrowers – redefining what it means to be a less-than-prime lender, and hopefully burying some of the stigma that has historically come along with it. With this new wave of borrowers and lenders, the likelihood for success is high and the market is more promising than ever.
Following the economic distress of the past few years, there is a new group of people who now fall under the category of less-than-prime borrower – consumers who need financing for automotive purchases who show that even when they are strapped for cash, these individuals are making car loans their number one payment priority.
Many of them have strong, established credit histories that took a hit when the economy crumbled and dealt them unforeseen financial hardships. Because of this, assessing the credit worthiness and risk of these borrowers should be calculated against a new subset of rules that take into consideration short and long-term marketplace and borrower behaviors.
While the demand for less-than-prime automotive lending gathered momentum, bankers displaced by the economic downturn established a host of less-than-prime automotive lending start-ups to meet it. Armed with experience, a broad knowledge of the financial services industry, an understanding of the technology available and a large network of people, these entrepreneurs have been able to create less-than-prime lending operations that look and work differently.
Due to tremendous strides in technology, the new model is based less on strong collection skills and more on getting the right loans into the hands of the right people, utilizing the technology, expertise and industry knowledge at their fingertips to make smart lending decisions.
For dealers, borrowers and the automotive market, the ability of these new less-than-prime lenders to meet market demand has made the difference between sink and swim. For legacy less-than-prime lenders, it means there is even greater opportunity in the market, but it may be time to assess collections-driven business models and adopt technology that will ensure competitive viability in the new era of less-than-prime lending.
Pete Radike, Director of Product Management for Lending Solutions at , can be reached at [email protected].