Faced with the obvious need to minimise lending risk and potential bad debt loss, lenders must try to approach every transaction in a way that minimises the possibility of the approved customer walking away to a seemingly better deal.
Getting down payment ‘right’ is an emotive issue that can be seen as a potential dealbreaker by the dealer, particularly if customers are required to find a deposit beyond their immediate means in the highly competitive arena of used car finance.
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Accurate and prudent deposit-driven dealing is a fine art, but the practice is always worth taking the time to get it spot on.
Lenders assess the customer’s circumstances and credit as the primary deal maker, but LTV must also be carefully assessed.
Like most other lenders, Southern Finance considers LTVs using data provided by Glass’s and CAP, but applies flexibility to the individual merits of a case to treat both the customer fairly and to provide the dealer with maximum opportunity to close the sale.
Two customers buying the same car from the same dealer will usually have differing credit profiles and, as such, will present the lender with a different credit risk.
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By GlobalDataFor example, they both might have clean credit records but different employment circumstances,
presenting greater or lesser degrees of risk, which may have a bearing on the LTV risk relating to each particular transaction.
In simple terms, the greater the perceived risk, the more likely the lender will be to try and offset this risk by requesting a proportionally greater deposit or down payment from the prospective purchaser.
So there’s the challenge – offering the right finance for the customer and the car. A seamless
process ensures a positive customer finance-buying experience, a ‘pleased’ dealer and the lender enjoying fair risk.
Get your LTV and credit risk assessment right and a productive customer loan portfolio with a positive asset spread which generates a healthy return on capital will be experienced.
On the other hand, get it frequently wrong, with a poor disregard for vehicle value guides, and regular losses on repossessions will be the norm.
Carl Virgo is head of consumer finance at Southern Finance
