Turn Browsers into Buyers with Subprime Auto Loans
While any financial institution will quickly approve borrowers with great credit scores, those with less than stellar scores are often overlooked. With the right partner in your corner, your dealership has the perfect chance to sell to these individuals by offering subprime auto loan options. Let’s take a look at who this segment is, and how you can benefit by partnering with a subprime auto lender.
The Trouble with Credit Reports
First, let’s review who these loans benefit. Subprime auto loans are targeted at buyers with credit scores of less than 650. This seems straightforward until you realize that different lenders use different FICO scores for credit cards, mortgages, and auto loans. This means your customer can have several different credit scores, depending on the type of financing requested. To make it more complicated, each credit bureau weighs activities on a report differently, meaning that the scores between Transunion, Equifax, and Experian can differ significantly.
Some lenders may average all three scores together, while others may choose one (usually Transunion) to gauge a borrower’s creditworthiness. Remembering that a credit score is more of a snapshot in time is vital, as payments that may positively affect a credit score may not have been reported to the bureaus prior to the financial institution’s credit pull.
No matter what credit bureau score is used to make an approval decision, however, it’s generally a score of less than 650 that disqualifies a buyer from a traditional auto loan. This can be an amazing opportunity for dealerships, especially considering that 20% of consumers fit the subprime category.
These Auto Loans Turn Browsers into Buyers
The average customer already has an idea of what will happen if they apply for financing. Chances are, they’ve been turned down before and are well aware of a troubling credit score’s impact on approval odds.
This makes a significant portion of customers hesitant to purchase a vehicle, and may keep them off your vehicle lot altogether. Knowing that they have financing options at your dealership that other dealers don’t will attract these customers through your door and to your desk.
The Downside to Subprime Financing
It’s important to keep in mind that while lenders do offer these financing options to buyers, they are considered riskier to the financial institution. They balance this risk by charging higher interest rates, so it’s important to make sure that a potential buyer can make these higher payments both now and in the future.
In order to ensure that borrowers can repay their loans, subprime lenders will often ask for additional financial information. Advise customers that they will most likely need to provide:
- Pay stubs
- Bank statements
- 1099 forms
- W-2 forms
- Valid proof of residency
Potential borrowers will need proof of a steady income, usually with some form of income requirements before a loan will be approved.
Lastly, subprime auto loans will frequently require higher down payments and charge higher fees, including prepayment penalties, compared to traditional loans. They may also be far less forgiving of late payments, so it’s important to ensure your customer’s ability to pay on time.
Bay Motor Financing and You: The Perfect Partnership for Imperfect Credit Scores
The reason Bay Motor Financing can specialize in subprime auto loans is our connection and backing with our parent company, Bay Country Finance. We provide competitive financing options that will save your customer money, even with poor or fair credit scores. We were founded on the belief that a customer is more than just a FICO score. Bay Motor Financial is a “non-judgmental” lender who gives all our borrowers the opportunity to make the dream of owning a car a reality.
Dealer-assisted financing streamlines the entire vehicle purchase process, ensuring you get your money and your customer gets the keys as quickly and efficiently as possible.
Want to learn more about the perfect partnership? Contact us today and let us help you get your perfect customer, with imperfect credit, on the road and out the door faster.