5 Best Practices for Successful Subprime Lending

COLUMBUS, Ohio — As more subprime players have entered the field, competition is revving up. But increased competition doesn’t mean lenders will need to layer risk in order to attract more business.

While MotoLease LLC is targeting a higher concentration in the prime and near-prime markets, subprime is still the leasing provider’s sweet spot, MotoLease LLC Managing Partner Emre Ucer told Powersports Finance. Subprime borrowers account for 70% of MotoLease’s leasing portfolio, as the lender’s mentality is to help “even the most credit-challenged riders,” Ucer previously said. “As a result of nearly 95% approval rate, MotoLease dealers gain a huge competitive advantage in their market.”

Ucer will expand upon this subject during a panel entitled “Keys to Successful Subprime Lending” at the upcoming PowerSports Finance 2017 conference, which is slated for Oct. 24-25 at the Wynn Las Vegas. During the session, Ucer and his fellow panelists will discuss subprime risk, underwriting best practices, and how to avoid seasonal repossession challenges.

Other sessions include Finding Loan Growth Amid Increasing Competition, F&I Dos and Don’ts, and Regulatory Compliance Update. The full agenda can be viewed here. To learn more — or to register — for this year’s event, visit the PowerSports Finance 2017 homepage here.

During AIMExpo 2017, Powersports Finance spoke with Ucer, who offered best practices for subprime underwriting and for handling subprime borrowers. Here are 5 tips for successful subprime lending:

1. Treat Subprime Customers the Same

The key to a subprime borrower is “treating them no different than a prime customer,” Ucer told Powersports Finance, in terms of how welcoming and open you are to his or her business. “The subprime audience is used to being treated different than the prime audience, and some dealerships want to get them into the dealership from the ‘back door,’” Ucer said.

Treat the subprime borrower like a prime customer “because they respond well to that, they are not used to that,” he added. “They are used to the dealer — for lack of a better term — ‘looking down’ on that audience. As a dealership, if you treat them the same and welcome them, they respond really well.”

2. List Monthly Payment and Price

Every city has subprime borrowers, but many dealerships might think the subprime audience “doesn’t exist in their area,” Ucer said. “It’s not because they don’t exist, it’s because you didn’t tailor offerings to them, so they don’t go to you. But subprime borrowers are still part of your community.”

As such, it is important to list all vehicles with an estimated monthly payment, in addition to the vehicle price, Ucer said, especially since the subprime audience may not be able to afford the full amount. “Most of the customers are paying customers, but many dealers only price the vehicles with the total price and not with the monthly payment estimate. There is disconnect there. [Subprime borrowers] need to know how much it will cost per month.”

3. Focus on Income Verification

“The approval, underwriting, and verification process for a subprime customer is obviously different than prime,” Ucer said. “With prime, there isn’t much verification required, but with subprime there is, which is why it’s important to focus on income. If they don’t have good credit, how are they going to pay? If they can’t prove that they make their payments, we have to trust them in some other way.”

To that end, income verification becomes “critical for the subprime audience,” he said.

4. Communication is Key

“The communication of the financing to the subprime audience can be a little different than prime audience,” he said. “They are used to denial, so now they are hesitant to apply because they don’t want to hear that they have been denied. There is an embarrassment factor to that.” Communicate with the customer and “give them comfort that they can still be approved,” Ucer advised.

While it is important to treat the subprime customer the same — in terms of being welcoming — the application process is different. The prime borrower knows he or she will be approved, so they are more concerned about getting the best rate, he said. “As an F&I manager, you shouldn’t use the same pitch for prime and subprime,” Ucer added.

5. Don’t Turn Down All Subprime Business

Finally, lenders and dealers should avoid turning down all subprime customers, Ucer said.

“The thing I keep hearing dealers say is, ‘I don’t want subprime business,’” he said. “That puzzles me. Who turns down extra business? They might say it’s too cumbersome, too much process. But in turn, you have better margins, you make more money. The reward is better.”

Additionally, many people don’t give subprime borrowers a chance. By being the person to give that customer a chance, word of mouth spreads, and not only is that customer loyal to the dealer or lender, but so are his or her friends and family, Ucer added.

To learn more — or to register — for this year’s PowerSports Finance 2017, click here.

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