Getting sub prime customers approved for a car loan is as much as art as it is a science.
1. Know the Deal - Have the deal in front of you and know it inside and out. Analyze the bureau and credit application. Obtain information from the customer on critical issues involved in their credit history and prepare your story for the lender.
2. Integrity It is a proven fact. Dealers who build good relationships with lenders get more marginal deals done. Be up front and forthright at all times. Never lie or intentionally misrepresent a deal to the lender.
3. Accuracy You can not kink deals. The application and other paperwork must be accurate. You can not stretch even a little. Everything must be verified. Remember, the customer's goal is to obtain a vehicle. A desperate individual may attempt to mislead you. You are cautioned to always verify the accuracy of the data provided to you by the customer.
4. Analysis Do not shotgun deals. A proper analysis will point you to the best lender available. It is costly and time consuming for lenders to process these applications. They watch funding to application ratios carefully. Dealers with unacceptable ratios can be "cut-off" by the lender.
Although each lender places an emphasis in different areas, all use basic principles when deciding if they should buy a deal. The principles can be categorized by what we commonly refer to as the SAW Principle.
Stability, Ability, and Willingness to pay.
Stability is very important to secondary lenders. They want to believe they can find your customer if it becomes necessary. Stability is usually demonstrated two ways:
1. Job Time: Lenders place more weight on job time than any other aspect of stability. Deals have been approved on strong job time alone. If your customer has limited time on their current job, lenders normally refer to the customer's three year work history to determine job stability. The work history should be consistent and any gaps in employment should be explained thoroughly.
2. Residence: Homeowners are generally considered more stable than those who rent. Again, lenders look at the length of time at a residence and history when determining residence stability. Length in a particular geographical area may compensate for short time at a residence. Additional information may be required if the customer is new to an area or from out of state. In general, short time at a residence should never be a deal breaker.
Lenders want to believe that in the future they will be able to find your customer. Keep this in mind when submitting or rehashing deals.
Can the customer afford the payment? For ability, the lenders examine income and debt.
1. Income usually falls into two categories (See income section for further discussion).
a) W2 income: This type of income is very important to a lender. This is attachable income or income that can be garnished.
b) Everything Else: This type of income is usually acceptable to a lender but is not attachable. Examples of this would include:
1. Child Support
3. Social Security
4. Self Employment
2. Debt - Debt usually falls into five categories.
a) New car payment.
b) Rent or mortgage.
c) Car Insurance.
d) Existing obligations (credit payments).
e) Payroll deductions.
Lenders want to believe that they will be able to collect their money from your customer. Keep this in mind when submitting or rehashing deals.
Lenders pay less attention to willingness than they do stability or ability. If customers were willing to pay their bills we probably would not be talking to them. Realistically, we try to find something or anything they have paid in the past. Again, try to find ways to sell this loan to the bank. Our analysis here should examine the customer's level of bad credit.
There are two types of credit. There is "good" bad credit and "bad" bad credit. Determine the type of bad credit and which lender(s) will approve the deal for maximum dealership profitability.
1. "Good" Bad Credit - This is the person who is only a situational credit abuser. You can usually identify his or her credit problem to one significant economic disaster or event.
a) Some examples of events which can lead to "good" bad credit are:
1. A divorce.
2. An illness or injury.
3. Laid off from work.
4. Bankruptcy due to a major family problem.
b) Some examples of "good" bad credit attributes are:
1. Currently paying on an open credit card account.
2. An open vehicle loan which is currently being paid.
3. A paid collection account.
4. Never had a repossession.
2. "Bad" Bad Credit - This person is a chronic credit abuser. This customer's credit decline cannot be isolated to one event. They show a long term history of credit abuse. Below are some examples of "Bad" bad credit.
a) Multiple BK's.
b) Multiple Repossessions, not part of a BK.
c) Significant bad credit after a discharged BK.
d) Currently delinquent on all existing obligations.
e) Past due on child support.
f) Repossession(s) less than six (6) months old.
g) Dismissed BK.
h) History of writing bad checks and never paying a phone bill.