Today, we are at one of the largest increases in auto loan delinquency rates—rates that haven’t been seen since before 2010. Reports say that the default rate for loans have already increased in 2016 with 12.3 percent in January, up from 11.3 percent just a month earlier in December 2015.
This could potentially be bad news for auto dealers and lenders who want to help finance cars for low-credit consumers. But it is possible for them to move their business forward despite the increase in auto delinquencies and defaults.
Ways to Protect your Profits
Find better deals with verifiable practices
There are a lot of auto deals being offered to customers with no credit, which is an extremely risky deal to make. However, to ensure safety, make deals with tighter applications and verification processes when you encounter a high-risk customer.
Automatic STIPS verification, for instance, can make your life easier and get you your buyer’s basic employment and housing verification. However, despite the STIPS verification, it is recommended that you ask even more questions about your buyer’s ability to make monthly car payments, taking into account how much of the car buyer’s after-tax income is left over, deducing daily needs and utilities.
Proper payment coaching
Subprime loan borrowers pay badly and may need more coaching to become better clients. Other than calling them directly to remind them of payments, you may also want to consider other non-invasive reminders, like e-mail or text notifications. You may even use car devices already installed in the vehicle to remind clients of due payments.
Secure profit tracking
Some lenders offer lower loan interests for good reason: if low-credit car buyers agree to have GPS devices installed in their cars, they can prevent potential losses as they have the option of immediate vehicle location and near-immediate recovery or repossession.
Another study found that one in eight used car dealers in California have sold one vehicle at least three times—imagine having to undertake the task of locating a car several times without a GPS tracking system in place.