Auto financiers must keep pace with trends such as working from home, volume volatility and financially stretched customers while meeting the
challenges posed by an upswing in delinquencies and repossessions. A robust business model requires cutting costs while offering products and services which attract and retain customers while mitigating risk from subprime borrowers.
Young moms with babies in tow, older workers commuting to work or those living in rural areas without public transportation all rely on transport – but car financing costs have become prohibitively expensive for many consumers in today’s economy. Luckily, new solutions have emerged to reshape this industry and make car ownership more accessible for people with credit issues.
Due to rising consumer debt levels, lenders increased rates to cover increased marginal funding costs; however, not everyone who applied for auto loans experienced equal impact from this. Some players, namely large banks and credit unions have maintained relatively stable pricing policies which has contributed to their expansion while some smaller players may have been squeezed out of the market entirely.
Capitol One Financial is one company that has taken steps to remain competitive by altering its strategy in order to stay profitable: rather than lending only to borrowers with poor credit histories, they now sell auto loans directly to third-party buyers, making the lender far more lucrative – an effect which has helped drive shares in Capitol One Financial up 23% this year alone.
At issue here is that many lenders rely on similar strategies employed by Buy Here Pay Here lots, where dealers are incentivised to set buyers up for financial disaster. According to legal documents reviewed by Consumer Reports (CR), such tactics include selling cars at exorbitant prices while offering financing at rates which are unaffordable; should a borrower default, dealers can repossess and resell it without consequence.
Brian Clegg, Black Book’s Senior Lender Solutions Manager, explores the complex world of vehicle values and current auto industry trends that are shaping auto lending landscape. Join this episode of Lending Link to gain more insight into these changes that may impact your business.