A New Era of Less-Than-Prime Lending

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].




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