Non-Prime Car Buyers are Back in Business…Are You?

They say history repeats itself, and it certainly appears to be doing just that in the non-prime auto financing market. Spurred by economic improvements, increased car sales, and the growing availability of credit, the non-prime market is poised for its first growth since 20071. But are dealerships prepared for this boom?

In the heyday of auto financing, before the number of non-prime auto loans plummeted from a pre-recession rate of 60 percent to only five to nine percent in 2009–20102, it was common practice for dealerships to have two distinct finance departments: one for prime customers and one for less-than-prime buyers that catered to the more specialized policies and requirements lenders needed to approve non-prime funding.

During the recession, however, a significant amount of lending supply dried up and, right along with it, non-prime dealership finance departments.

Today, even though non-prime auto financing is on the upswing once again, representing one of our industry’s most powerful growth opportunities, many retailers find themselves inadequately equipped and woefully underserved when it comes to managing the specialized needs, as well as the significant opportunities, less-than-prime customers bring. But there is now help in the market, which is good news, because working with non-prime customers is not only worth the effort, but will open up a new population of car buyers for their dealerships.

The first thing dealerships looking to expand their reach into this reemerging market should do is broaden their lender mix, which means including lenders who are not only experienced and reliable, but who are also nimble and flexible enough to effectively navigate the more diversified non-prime approval process. In addition, with so many dealerships returning to non-prime after several years out of the market, it is important to include lenders who not only understand the intricacies of non-prime approval qualifications, but who are willing to help educate dealership personnel on the nuances of qualifying these non-prime customers.

In other words, dealerships should look for lenders who will help facilitate the sales process, not inhibit it. And, while there are several excellent large players providing lending services, for dealerships inexperienced in the non-prime market, working

  • Do you have expertise on the mid-market non-prime approval process (from 550 through 675 FICO)?
  • Do you have the ability to allow my sales personnel flexibility and negotiating room in loan decisions, while also offering structuring options on an average approval, to ensure maximum profitability?
  • Can you guarantee speed on the contract funding side so my dealership is reimbursed quickly?
  • Do you offer one-on-one support?
  • Are customer service specialists available during and after business hours to answer questions and provide individualized assistance?

Bottom line: non-prime auto financing isn’t an exact, “black-and-white” science. There are plenty of gray areas with moving parts. Lenders that lack expertise in the non-prime market also lack the flexibility required to service the intricate needs of non-prime customers. In turn, dealers that work with the wrong lenders run the risk of losing out on significant non-prime business opportunities.

Fortunately, there are new lenders in the market that fulfill all the requirements dealerships coming back into the market need. And, with nearly 40 percent of buyers now falling into the sub-670 FICO score category3, it is news most dealerships can’t afford to ignore.

1CNW Research, cited in F&I Magazine, 4/2011:

Experian Report cited at MSNBC

2Associated Press, cited in Edmunds Auto Observer, 7/2010:

3CNW Research, cited in F&I Magazine, 4/2011:

Jim Landy is the president and CEO of CarFinance Capital.

Jim Landy


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