The most recent report from Experian Automotive showed that more than 25 percent of the loans given out to consumers in the first two quarters of the year went to borrowers with less-than-prime credit. This is a 14 percent increase compared with the analysis on the same quarter last year. This means one thing: that subprime lending is on the rise.
Moreover, Experian Automotive also reported that the average credit scores for new and old vehicles both dropped by nine points to 762 and 671, respectively. Meanwhile, the average amounts financed for new and used vehicles increased.
With more lenders accommodating borrowers with less-than-stellar credit and as banks and other loan institutions loosening their credit standards, what should dealers do now? What should you do knowing that there are a lot of special finance leads out there?
With this trend in the ever-competitive automotive industry, you should start forming a special finance department in your dealership or, if you have one already, perk it up.
Why would you need to form a separate department for your special finance leads? That is because their situation is different from borrowers with good credit. You can start forming your special finance department with just one special finance guy. Hire someone who has experience in dealing with credit-challenged borrowers or who has a heart toward them or understands their needs and situation.
But before anything else, take some time to study. Study your market, the current trends, and the demands of special finance borrowers. A good way to start is subscribing to market analyses like that of Experian Automotive and other similar research bodies. Make sure that you know who you are dealing with and how to capture them. Aside from understanding the behavior of your target market, know also the state laws for subprime lending and make sure to do things legally.
After you have done your research, you can start signing up at least five lenders and make sure you work closely with them. Of course, you would want to build a good relationship with them as you want to get your leads into financing.
Lastly, if the buyer cannot get financed with the car that he wants to buy, do not give up all hope. Try offering the buyer another car with which you know financing can be fixed. Likewise, when a lender rejects the loan application of a buyer, do not easily give up. Try with other lenders. Remember that the auto lending market is different now and lenders are more willing to finance car buyers. Always be confident that you can fix financing for your credit-challenged customers.