How to balance underwriting favors to avoid pitfalls

SAN DIEGO — While lenders typically try to meet dealers halfway, they need to draw the line when it comes to underwriting favors, Kristi Mercier, chief operating officer of ThunderRoad Financial, told attendees at Powersports Finance Summit.

“I’ve had a lot of dealers calling me saying, ‘Can you do me a favor? I’m a good, loyal dealer of yours,’” Mercier said. “But then what you need to realize is that no matter what type of partnership you have with your dealerships, there are two huge pitfalls [with answering favors].”

For starters, the lender puts itself at risk if the deal becomes delinquent and may ultimately suffer a loss on the contract.

Another pitfall is that the deal might put the consumer in a bad financial situation. A consumer who has a bad experience is more apt to spread negative feedback about the lender, Mercier noted, and the dealer may lose out on repeat business.

However, there is a grey area with agreeing to dealer favors, “because it doesn’t benefit any of us if the bike is not rolling,” Mercier noted.

It’s up to a lender’s discretion whether something can be done to make a deal work. “At that point, you really need to consider: Is there a possibility [to approve the application] with more money down or a shorter term?” Mercier explained. “Is there a benefit of Vendor Single Interest insurance on the back-end to cover your loss? Or is it something that’s completely not possible?”

The bottom line, though, is to be upfront with dealers, Mercier added.

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