A new study in overall auto sales and car financing is coming up with the same outlook that many savvy lenders already have about the future of the American market: it’s all about good, balanced common-sense lending.
The A. T. Kearney group has been in the business of forecasting auto sales for 15 years. The newest annual study from this team shows that lenders who are willing to deal with “bad credit car loan” customers are going to be one step ahead of the game as more U.S. consumers line up for new 2011 Ford and Chevrolet vehicles, as well as models from foreign makers, at local dealerships.
First, the Kearney study outlines the facts as we now know them: with Americans struggling back out of a deep recession, there are going to be a lot more borrowers that don’t have sparkling clean credit or the kinds of superb credit record that established lenders often require for a very low lending risk. The study estimates that over 500,000 consumers are going to be “locked out” of the promising domestic auto market according to rules now in place at mainstream, risk-averse banks and car financing companies. Whether they are seeking a new 2011 Ford SUV or a used Toyota Prius, anyone with a credit score below the 680-700 range could be left out in the cold.
What this means, in plain English, is a breakdown in the “matchmaking” process that goes on between dealerships and car customers. The auto loan world isn’t quite like other markets, where new customers are welcomed with open arms. Dealers and lenders understand that credit risk is a serious thing. But the new study, as well as views from the street, suggests that the most cautious lenders are going to see their market share eaten up by lenders who are willing to look beyond a simple FICO score. That’s because so many “bad credit car loan” customers are going to be visiting dealerships, and because so many of them are not actually major credit risks. A simple credit score doesn’t really tell a lender whether the borrower is going to default, and A. T. Kearney’s crystal ball indicates that, over time, the model will change, from cutting out a huge swath of customers as “bad credit car loan” borrowers, to scouring the detailed financial history of each potential customer and making more nuanced choices. The Kearney report also goes over total production numbers and more, so check out this essential indicator of where the market will be and how you can benefit from it at the auto loan desk.