American Cycle Finance has changed its lending guidelines to allow consumers to make lower down payments, President Ben Donnarumma told Powersports Finance.
The lender made the changes in late February, which were spurred, in part, by fraud-prevention tools the lender implemented six months ago. It took American Cycle “some time” to get used to the tools and learn how to capitalize on them, Donnarumma explained. The fraud tools help catch consumer fraud such as incorrect information on the application, so the lender felt more confident in lowering the down payment for consumers who weren’t flagged by the software.
“We’ve done a better job verifying certain things,” Donnarumma said. “So, when you do that, you’re more confident in what you have, and then you’re able to lend more.”
Despite lower down payments being riskier for the lender, the guideline changes helped to drive “significant” origination growth during March, Donnarumma said without quantifying.
“Lower down payments increase our risk because we’re financing more, but because we can verify the information to make sure it’s not fraudulent and it’s accurate, we can offer the dealer the opportunity to put more deals together with less money down,” Donnarumma added. “If I told dealers tomorrow that everybody can be [underwritten] with no money down, the volume would go up times 10. The more flexible we can be on down payment and terms, the more deals the dealer can put together.”
The Marlborough, Mass-based lender specializes in subprime lending and works with more than 400 dealerships.