Use the Personal Approach

The line between prime and non-prime lending is getting blurred.

So says Rich Zellner, director of strategic initiatives and long-range planning for WFS Financial, an automotive lending firm.

“It used to be: ‘This person is bankrupt and belongs in special finance, and this person has great credit,’” he says.

It is less clear in today's world, when people who aren't reckless financially can still take a credit hit from life forces, such as divorce and high health-care costs without medical insurance (medical bill collectors have become more aggressive, pushing many people lacking coverage into sub-prime levels).

More people are finding themselves in non-prime and sub-prime lending categories — nearly 50% of U.S. consumers by some estimates, using a 660 FICO (Fair Isaac & Co.) credit score as the threshold.

“Our non-prime portfolio has grown 25%,” says Paul Rule, a vehicle group business manager for Chase Auto Finance. “Prime isn't growing that way.”

Computerized automated decision making is becoming more prevalent in processing auto loan applications. But it is not for everyone — especially not the seriously credit-challenged, Brad Noel, a senior vice president at Wells Fargo Financial Acceptance tells an F&I Management and Technology conference here.

“Non-prime and sub-prime require more of a personal touch,” he says.

Zellner says “someone looks at every non-prime deal” at WFS to determine various things, such as whether a particularly priced vehicle financially makes sense for a particular shopper with credit problems.

“Because that is part of what we do, we won't completely automate,” says Zellner. “Relationships are the key. We're all in this together.”

Dealership finance and insurance staffers should personally interview credit-challenged customers seeking financing “to try to figure out why they are where they are in their lives,” says Rule.

Attempting to assess that aids in securing financing and also helps put them on the road to rehabilitating their credit, says Rule.

Steve Norbut, vice president of sales and marketing for Centrix Financial, a sub-prime lender, says his firm just started using an automated decision-making system.

It is used in about half the sub-prime loan applications Centrix processes. As for the other half, “there is certainly work to be done,” says Norbut.

“Some things the machines don't do well, such as decision-making when bankruptcies are involved,” he says. “You really need human interaction to sort things out in certain cases.”

It is important for dealership F&I personnel to submit thorough sub-prime loan applications, says Dave Robertson, executive director of the Assn. of Finance & Insurance Professionals.

“The more challenged the credit, the more complete the credit application,” he says.