The question that dealers and lenders ask themselves every time they close a loan application with a car buyer, especially if he/she is a subprime loan borrower, is: “Will this loan opportunity bring profits or bring demise to my business operations?”
But really, the question that should be asked is: “How do I better manage my portfolio and risk for success?”
Subprime Lending will always be Risky
The facts tell us that subprime and BHPH auto lending will always be a risky endeavor, with 25% to 30% of BHPH deals ending in repossession and an average transaction time of 2 years. In California, at least one in eight used car dealers sold a vehicle at least three or more times due to the previous borrowers’ inability to afford the vehicle.
Recent Trends towards higher Auto Delinquencies
According to Fitch, increased loan originations, higher lender competition and looser underwriting standards among the subprime loan market have caused an influx of higher auto delinquencies. A recent report indicates that subprime delinquencies of 60 days or more have reached an all time high (5.16%) that has not been since in almost 20 years (5.96% in 1996).
This is a problem since, as we all know, higher delinquencies mean higher rates of default.
Analysts from Moody’s have claimed that shaky subprime lending market cycles – reminiscent of the poor recession in the 90s’ that exhibited increased competition and looser, low quality underwriting – typically drive unforeseen profit losses that put lenders and dealers out of business. Let’s face it – irresponsible lending can put your lender or dealer business at risk.
Profits Dwindle & Depreciation Accelerates During Recourse & Repossession
The vehicle recovery process is also a time-consuming process, with the average repossession process taking up to 37 days. Hiring repo agents are also costly and taxing, and reports in the news have also indicated violent incidents among competing repo agents! Now that’s one more problem lenders or BHPH dealers would have to deal with!
Imagine what happens in those 37 days of average repossession process? A delinquent borrower might decide to ride the car to the ground or abuse the interiors or other car parts.
Instead of having to entirely rely on repo agents and collector labor to pursue recourse or repossession, count on GPS vehicle tracking to protect the value of your vehicles – and be able to locate a vehicle with a click of a button.
Our latest automotive lender CMS and recovery tool solution, Goldstar Lender, has all the features that enables your lender business to thrive. Visit our GPS vehicle tracking solutions page for the complete information on dealer and lender solutions.