Offering prime, near-prime and nonprime lending gives TD Auto Finance the ability to claim one-stop shopping regardless of a customer’s credit score, Wadeson said. Prime refers to lending packages offered to customers with the least risk of default. Near-prime and nonprime offer different loans, often with higher interest rates and different loan durations, to customers with lower credit scores or who don’t meet the payment-to-income ratio requirements for prime loans.
IN LENDING, SPEED THRILLS
To secure the few loans out there, Roosenberg said, lenders need to empower their front-line loan approval staff to make decisions quickly and ensure that decisions are communicated quickly, particularly when the deal has to be different from what was submitted on the application.
It’s also imperative that lenders communicate their policies effectively to manage dealer expectations, he said.
“It’s up to the sales rep to make sure dealers understand what the risk profile is so there’s no confusion or that the dealer isn’t sending deals that don’t fit the risk profile,” Roosenberg said.
Dealers will choose to do business with lenders based on fast turnaround, said Steve Chipman, president of Winnipeg-based Birchwood Automotive Group, which owns 21 dealerships in Manitoba, Saskatchewan and North Dakota. But lenders also compete for the business based on the reserve, or the amount lenders pay dealers for filling out the paperwork, Chipman said.
“We submit to several banks at once,” he said, “and when we see the approvals coming back, it’s usually the fastest back that gets the deal. But banks pay us to do the paperwork, and different banks pay different rates.” Dealers will give a bank with a higher reserve a bit more breathing room on time, he said.
Some banks offer the ability to fill in paperwork using electronic signatures, another competitive advantage that dealers appreciate, Chipman said. “Banks that offer e-sig make it easier to do business with them,” he said.
Electronic signatures are a relatively recent addition, Wadeson said. As late as early 2020, some banks were still requiring dealers to fax forms, he said.
Captive finance companies, owned by some of the automotive manufacturers, are at a disadvantage in today’s market, Chipman said.
“There are no incentives right now because of the shortage of supply, so captive finance companies aren’t as competitive right now,” he said. This is particularly true as the slowdown in sales leaves banks sitting on surplus money they’re eager to lend.