Sharing Lender Insights
In June one of our F&I 20 group face-to-face meetings hosted a lender panel discussion. Bank of America’s Specialty Group, Deutsche Financial Services and Bank One sent senior level representatives to answer the 20-group’s questions. Three hours were allotted for the discussion, but it could have lasted all day. I am sure you will find the following insights illuminating.
Credit Scores: All three banks indicated they redefine credit scores. Why? Many new bankruptcies involve people with stellar credit history but with extraordinarily high revolving credit card balances.
The FICO scores only indicate a track record for the past few years. Lenders want to look at every element of the deal-Credit, Capacity, Character, and Collateral-the 4 C’s of credit.
What can you do to provide the lenders the information they want? 1. Pull the credit bureaus on your customers; preferably use the same credit bureau the lender uses. If past credit problems talk to the customer. There may be extenuating circumstances that can be overcome if documented. 2. Get a down payment. 3. Verify income and residency. 4. Contact the underwriter before you send the credit application when supporting documentation is attached. Some lenders contract out the data entry, and while the data entry is 99.1% accurate, the supporting documentation that does not fit into the fields is left off. 5. Build a strong relationship with one credit underwriter. Tough deals become easier when there is trust between the manager and the lender. The operative word is TRUST-that valuable, intangible product. It is the magic that lights the road ahead.
Without the above, delays are common. Your customer may find quicker approval down the road and then your sales personnel loose the deal. And what do the sales personnel think of you?
The lenders believe it takes less time for a decision than the F&I managers. You may want to keep a time log. Indicate when the application is submitted and when the decision is given. When you have sufficient data discuss your log with your underwriter. Facts pave the way to change.
Advances: The higher the credit score the higher the allowable advance. Lenders are skeptical about loaning over advances on average credit-worthy people. Why? In recent years the lenders suffered huge losses on repossessions. The banks know that the higher the balance, the higher the payments, the higher the risk to themselves.
Advances will continue to be limited. Each lender made it clear that they like customer equity. Down payment is once again a key element in securing financing approval. We have to work harder at securing more of a down payment. The following ideas can help reduce the payment so the down payment goes further. 1. Finance service agreements outside the contract. Utilize the zero APR payment plans, which many companies offer. 2. Investigate critical period disability, in states where it is appropriate, as an alternative to accident & health coverage. The accident and health coverage makes a huge difference in payments. 3. Fight harder for credit life insurance. Even truncated life insurance is far better than no insurance on the loan. One lender confided that 40% of his company’s repossessions were voluntary and 25% of those were death-related causes. As an observer, that is an excellent case for credit life being on most of the loans.
Future: We need to work harder, the credit scores you see tell us that. We need to become better credit interviewers and get the required support documentation in a timely fashion. We have to prove income and residency. And our customers have to have up front equity in their RV’s.
Our new customer base appears to be strong, credit savvy, and users of the Internet. Don’t give the12,000 new people turning 50 years old per day, who have a renewed interest in traveling the continent with their families, a reason for dealing with your competitors.
This is an exciting time to be in the game of life. Keep your running shoes close at hand. As Dr. Johnson said in his recent book, “They Keep Moving the Cheese!”
Our F&I 20 Groups keep our members at the beginning of the curve. For information on how you can become a participant contact our office.