Buy-here-pay-here (BHPH) dealerships and subprime auto loans are becoming a popular option for consumers across the country. But with an increase in loans for those with subprime credit (FICO below 600), there’s an increase in late payments and defaults.
In this blog, the buy here pay here software software experts at Skypatrol will break down the statistics behind subprime auto lending, the reasons for an increase in delinquency, and ways dealers and lenders alike can improve payment rates and lower the likelihood of repossession or financial losses.
Subprime Loans By The Numbers
According to Fitch ratings, the number of people who qualified for subprime loans, and are at least 60 days late on paying those loans, rose to 4.86 percent in August 2016—a 22 percent increase from a year ago, and a sign of worse numbers to come. In turn, delinquency rates on these loans continue to rise as well, at a rate of 0.41 percent—17 percent higher than last year.
Many experts project late payments and delinquency rates will continue to increase throughout 2017, on track to surpass Great Recession numbers from 2008 and 2009.
What’s Causing This Change?
In short, there’s a larger subprime auto lending market, more lenders who are willing to take on more risk with subprime loans, and emerging technologies that mitigate that risk—like GPS tracking solutions that aid in expedient vehicle repossession.
It’s also possible that—with increasing loan-to-value ratios and longer loan terms—subprime lenders are allowing consumers to take on more care than they can afford. Similar to the subprime mortgage crisis that was a primary cause of the Great Recession, some experts predict this subprime auto lending pattern could be the boom before the bust, but on a smaller level than that of the subprime mortgage crisis
Why Is This Important For BHPH businesses?
BHPH car dealerships are seeing more consumer traffic and taking on more risk than ever before—and in order to lower the odds of delinquency and default on subprime loans, they need technology that promotes easier and more convenient loan payment methods, and mitigates some of the risk that comes with loaning someone a $10,000+ vehicle.
There are plenty of ways BHPH dealerships can avoid defaults and late payments, and make repossession of vehicles easier in order to avoid financial losses:
Payment Reminders – Making due dates clear and payment channels simple and easy gives borrowers much more incentive to pay bills on time. This can be accomplished through SMS or email payment reminders and accessible payment stations for people with and without Internet connections.
Repo Tools – GPS tracking solutions allow for quick location of vehicles, and features like ignition on/off recognition can make the repossession process easier for all parties involved.
Data Organization & Verification – Keeping your business and customer data organized and up-to-date is crucial for loaning cars to the right people, and making sure your customers are staying on top of payments.
How Skypatrol Defender Can Help
Skypatrol Defender is a state-of-the-art solution for BHPH dealers and auto financers, using a single, Verizon-powered platform for all of your BHPH needs. Use Defender to set up automated payment reminders, custom geofences, repo tools, and data verification to keep your clients paying and your business running. Schedule a demo of Defender today!