We compiled three best practices successful auto lenders have used to implement a GPS collateral management solution, such as GoldStar™, to better serve their customers and grow their auto loan portfolio. You can adopt some or all of these guidelines in establishing your own successful program.
1: Start with Collections
To get a feel for a GPS platform, often times lenders roll it out in Collections first. As a starting point, it is good practice to require customers redeeming repossessed vehicles to:
- Agree to have the GPS device installed at their expense
- Sign the legally required disclosure statement
- Pay all collection costs
Once a lender has established a solid set of guidelines that best serves its business, the program can be extended to include loan originations as well.
2: Establish a risk-based system with additional inclusions
Some lenders use credit scores and other risk factors to determine when to have a GoldStar GPS device installed. They may require it on all “C” and “D” paper, as well as “A” and “B” paper when certain risk factors apply:
- Flight risk — An applicant who became a customer of the lender within the last 12 months or is planning to relocate over 50 miles away from the lender
- Previous repossession — An applicant who had an auto repossession in the last five years and/or had more than two auto 30-plus-day-late marks on a credit bureau report
- Bankruptcy — An applicant who has an active bankruptcy or a bankruptcy discharged less than three years ago
- Limited credit — An applicant with limited credit who has not had a trade line equal to or greater than the applied-for purchase amount
- Redeemed repossession — When a customer wants to redeem a repossessed vehicle, a GPS unit is installed at the borrower’s expense, he or she must sign a legally required disclosure statement, and the borrower pays all repossession costs
3: Set minimum requirements in credit score, employment, and more
This program is popular because it’s easy and fast to implement. A GPS, such as GoldStar, is required for all borrowers with a credit score below 600 or for repossessions to be returned to borrower.
In addition to credit score:
- Proof of income is required
- Employment is verified with at least six months on the job
- Debt-to-income (DTI) is less than 40 percent
- Insurance must be obtained prior to loan close
- A minimum down payment is required ($500–$2,000, depending on loan amount)
- Interest rate ranges from 15.9 percent to 22.9 percent based on a sliding scale of DTI and credit history
- Payroll deduction or automatic payment from the account is required; if auto payments are cancelled, the interest rate increases by 3 percent or the maximum allowed by law (whichever is less)
For more information on how to most effectively implement a GPS collateral management system that safely grows your auto loan portfolio, ask the experts at Spireon.
This article originally appeared in Auto Finance News.