Approval rates for non-prime finance
applicants are on the rise due to increased funding in the sector,
better decision-making software and greater awareness of credit
scoring processes among customers, lenders have reported.
Louis Rix, director of brokerage
Carfinance247, said that 26% of non-homeowner applicants were
approved for car loans in April this year, compared to just 15%
during the same period last year.
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Similarly, some 38% of subprime homeowner
applicants were approved in April, up from 29% in April 2010.
Meanwhile, non-prime lender Duncton has seen
approval rates increase significantly on the back of increased
funding and investment in new decision-making software.
Duncton’s automated credit decision system,
Eclipse, currently approves between 40% and 50% of applications
instantly and rejects around 10%, passing the remainder through to
manual underwriting.
Of this remainder, around 50% is then
approved, meaning that of all applications to come through
Duncton’s doors, between 65% and 70% are approved.
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By GlobalDataDuncton’s sales and marketing director Shamus
Hodgson commented: “A lot of the low approval rates in recent years
have been down to cash constraints among lenders. We are currently
very much in growth mode, and are very confident of the quality of
our approvals we do give due to the investment we have made in
Eclipse.”
Elsewhere, the volume of applicants given the
green light for motor finance by The Funding Corporation is on the
rise, says managing director David Challinor.
The company, which provides car finance
through retail subsidiary ACF Car Finance, expects acceptance rates
to increase by up to ten percent over the coming twelve months.
Challinor says that increasing approval
rates are down to greater understanding of the credit decision
process by customers.
“Widespread publicity given to the
tightening of most lenders’ application criteria has heightened a
sense of realism among consumers about how their credit history is
likely to influence a lending decision. It seems customers are
second guessing underwriting decisions and self-selecting the more
appropriate lending options for them,” he said.
“This means that we are seeing an
ever-increasing percentage of customers coming forward with credit
applications which we can accommodate.”
Like Hodgson, Challinor also nodded to new
software as a factor behind increased approval rates.
“Our new credit evaluation system, which we
developed in conjunction with Experian, marries credit history and
other financial data with information obtained, and later verified,
in one-to-one customer interviews with our underwriting team.
“It is, admittedly, a time-intensive
approach – but the result is an overall increase in the number of
approvals we give, and a higher level of confidence by The Funding
Corporation in the ability of customers to honour their obligations
throughout the term of the agreement,” Challinor concluded.
