Excerpt from Forbes.com
According to Experian Automotive, a division of the Experian credit bureau, subprime loans accounted for 23 percent of new-car loans in the first quarter of 2012, and 57 percent of used-car loans. Those figures are up from 21 percent and 55 percent, respectively, for the same quarter a year ago.
Explanation of subprime auto loans & special financing lending
Subprime loans tend to have a higher interest rate than the prime rate offered on traditional loans. The additional percentage points of interest often translate to tens of thousands of dollars worth of additional interest payments over the life of a longer term loan.
However, getting a subprime loan could still be a good idea if the loan is meant to pay off a higher interest debt (such as credit card debt) and the borrower has no other means for payment.
The specific amount of interest charged on a subprime loan is not set in stone. Different lenders may not value a borrower's risk in the same manner. This means that a subprime loan borrower has an opportunity to save some additional money by shopping around.
Security Auto Loans: Subprime Lending and Much More (Source: Dealer Business Journal)
Everyday customers walk out of auto dealerships without purchasing a vehicle. Why? Because most dealerships lack the ability to help customers who have seriously negative credit.
Statistics show, four out of five people with bad credit are honest, hard-working people who are doing their best. Sometimes their best isn't good enough, but they are trying. Dealers have said, I don't want those types of customers in my dealership. Understand that those individuals are already in your dealership. These customers leave without buying a vehicle because most dealers lack the knowledge and processes to help them. If you could capture those customers and sell them a car, then have them return in 12 to 14 months to sell them another car, at no cost to you, would you be interested? Of course you would!
Security Auto Loans (SAL) is a subprime used auto lender located in Minneapolis, Minn. While the company has been in business for only eleven years, it's principals have more than 20 years of subprime auto finance experience. From the company's beginnings, its approach to doing business has remained a simple one: provide friendly, personal, superior service to the dealer, with a focus on enabling the dealer to get to yes for his/her customer
SAL facilitated this approach by adopting flexible dealer programs that do not rely on strict inflexible scoring algorithms. Rather, human beings work with dealers to help them structure loans that make sense for the dealer and the dealer's customer. We buy the customer and his story, not just his credit score.
This personal approach to lending along with demonstrated flexibility for getting deals done has engendered significant loyalty for SAL. Many of the dealers that came aboard during the first months of SAL's beginnings are still with them today. This loyalty has helped SAL build its portfolio to $17 million in loan receivables with over 4,600 active accounts. Security Auto Loans does business with hundreds of dealers large and small, independent and franchised. The company is licensed for business in 10 states Minnesota, Iowa, Nebraska, Kansas, Missouri, Wisconsin, Illinois, Michigan, Ohio and Pennsylvania.
Security Auto Loans dealer programs are simple and convenient. SAL does not require age or mileage restrictions on the vehicle financed - the minimum income requirement is $1,300 per month with a three-month job requirement. With these low minimums, SAL is able to approve 97 percent of all applications for their reserve program and does not charge dealers a fee. Yet, SAL regularly buys deals that are sometimes turned down by other sub prime lenders that do charge fees. SAL owes much of its success to the value provided to dealers from its reserve based loan program. With this program the dealer receives 30- 80 percent of the amount financed up front. The remainder of the amount financed (the reserve) will be paid to the dealers provided his/her portfolio pays. It's that simple. To date, SAL has paid more than $9 million in reserve dollars to dealers based on the performance of their portfolios!
SAL is not a discount lender. Dealers should use caution when using discount lenders. When a loan is discounted, the upfront advance to the dealer is all that a dealer can receive. The discount equates to a fee to the dealer that cannot be recovered. SAL charges no fees and is a non-recourse lender!
Best of all, dealers offering SAL loans can receive a special lowered payoff when the customer trades the vehicle in. When the customer returns to the dealer who financed the vehicle through SAL, the dealer can receive a lower payoff than what would be offered if the customer went to another dealer. This provides an enormous advantage to dealers working with SAL for repeated sales to its customers. The dealer can trade the customer out in typically 12 months. Try that with a lender who charges a huge discount fee!
Looking ahead to the future:
The current economic situation has caused high unemployment rates, increased foreclosures, a substantial increase in personal bankruptcies, and a tighter consumer credit environment. Unfortunately, the number of potential customers with credit issues is only expected to rise. Security Auto Loans offers dealers an answer to selling cars to this growing segment of the car buying market. Leaders in automotive dealership subprime auto loans / special financing