Prequalification is the tool to win over finicky subprime buyers


Reports of rising interest rates and the approaching recession could spook some auto buyers, but dealerships leading them into pre-qualification can allay their concerns, vice-president Satyan Merchant told Wards. senior president and automotive business leader – TransUnion.

Consumer finances have been protected and supplemented with stimulus funds, forbearance and accommodation programs during COVID-19. Although many of these programs have ended and prices have risen across the board, lenders are willing to extend credit to buyers. This is especially true of used car buyers in the subprime category.

“The loan source is relevant to the dealership, not the loan type,” Merchant explains. “We’re seeing credit unions, and in particular independent finance companies, getting larger and larger shares of used vehicle financing.”

This is especially relevant for subprime buyers. Although subprime consumers in 2020 and part of 2021 were unable to purchase vehicles due to low incomes or other adverse financial factors, dealerships are now seeing more independent lending institutions, banks and Credit unions take higher shares of the subprime market, from around 15% in 2017 to around 20% today.

In contrast, TransUnion saw lower year-over-year loan origination growth for first and very high-end consumers.

“I think it’s almost likely related to the fact that new vehicles just aren’t available because the overpowered consumer tends to buy new vehicles,” Merchant says. “Manufacturers just can’t make them fast enough. And so, origination growth is weaker on new vehicle loans, but it’s not because the customer doesn’t want the car. »

All of this means that dealers who approach financing up front are likely to overcome buyer hesitancy to buy. This would add to positive financial trends in car buying, with consumer spending approaching pre-pandemic levels. In addition, consumer liquidity remains stable.

Yet auto buyers are concerned about financial viability, and their first question is usually what they can afford. That’s why dealerships should make it easy for buyers to receive accurate numbers and pre-finance — not just estimates — whether they’re buying at the dealership or online.

“I think there’s a real need for the industry to move in this direction,” Merchant said of the pre-qualification for auto buyers. “But an important part is not only being able to view the vehicles online and choosing the features and all the other parts of the vehicle. But it is also understanding the financial aspect of the agreement.


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