After the economic recession, the profile of the American car buyer has changed dramatically. The days of endless credit limits and prime financing options for everyone came to a halt. As customers adjusted to the changing financial industry – the automotive industry also had to switch gears to keep pace.
While lenders eventually began to loosen their reins and started to offer financing programs again to “less than perfect” customers – many consumers found themselves sorted into an unfamiliar category – subprime. And while some dealers and lenders saw this new customer classification as unfortunate, many others saw it as an opportunity.
Dan Cheng, the Finance Manager at of Kearney Automotive suggests, “Auto lenders who understand that lending has more nuance to it than a FICO score and are able to accurately size up credit risk in a lower FICO-score environment, will better avail themselves of the opportunity to help buyers finance new car purchases.”
Experts are quick to note that most subprime customers of today are typically not the same individuals that were labeled as subprime in past years. Cheng added, “In the past few years, we have seen a lot of people that once had great credit go through some tough times and are now just getting back on their feet. Most of today’s subprime customers are fully aware of their FICO scores and what that means in regard to buying a vehicle. As such, they’re more inclined to bring along necessary documents, such as proof of residence or pay statements, to prove their financial status.” These customers are easy to deal with, especially when they find the rates and terms that they are able to qualify for; and for the most part, they will gladly provide the documents that are requested of them.
In an interview with Automotive News, Howard Astor, a finance executive in the automotive industry explains “People are feeling comfortable about making a purchase now. The recession created leverage issues, where the banking systems froze up. Even if someone wanted to buy a car in those years, their lending options were limited. It was a much tougher environment to buy automobiles, but if you look at the environment today, things have loosened up and it looks pretty rosy.”
Because of the financial struggles they’ve endured, these new subprime customers are often very smart consumers. They understand the loan process, its requirements and their own responsibilities.
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