Growth Of Auto Subprime Lending And Lead Generation Techniques To Capture Prospects

A recent report about a spurt in non-prime lending has evoked a lot of interest and surprise among prospective car buyers and investors alike. Subprime lending is the lending of credit to borrowers who have poor credit score. Borrowers with a credit score of less than 680 are seen as risky by mainstream lenders, which makes it next to impossible for the former to get a loan from such lenders. However, with the rise of non-prime lending, this trend is now changing. During a recent conference hosted by Standard & Poor Rating Services, it was disclosed that in the first quarter of 2012, US investors bought more than $5.8 billion in asset-backed securities from non-prime auto lenders. The same figure for the first quarter of 2011 was $3.5, which indicates an annual increase of more than 60%.

Sub Prime Auto Loans Rise

Figures from Experian Automotive, a branch of the Experian credit bureau, clearly illustrate the growth of non-prime lending. In the first quarter of 2012, almost 23% of all new car loans issued to customers in the US were subprime loans. The total amount of credit issued by lenders for used vehicles during the same period stood at 57%. These same figures stood at 21% and 55% respectively during the first quarter of 2011.

Lenders vary their interest rates according to the client and for special finance loans the figures are definitely much higher, leading to potentially good returns. Experian estimates that borrowers with extremely bad credit scores face around 17.9% interest for used car loans. At the other end of the field, borrowers with excellent credit scores need only to pay back 4.4% interest. These translate to monthly payments of about $356 for bottom non-prime borrowers and $345 for good credit clients. The difference, when added up throughout the whole payment cycle, presents enormous potential earnings for lenders.

A recent survey by the Fair Isaac Corporation (FICO) shows that auto lenders are willing to offer loans to customers with scores of less than 680. Albeit only 25 percent of these lenders expect this line of credit to experience further growth as the year progresses, most respondents expect the biggest growth to come in the form of auto loans.

The Driving Force

One of the main reasons behind the spurt in special finacne auto lending is the low rate of interest that is currently prevalent in the market. This attracts more customers, especially in a slow economy such as the present one. Before the housing bubble of 2008, it was much harder to get car loan even if you had a good credit score.

Overall reduction in gas prices is also a major factor contributing to the popularity of automotive funding. As gas prices gradually subside, more people are looking to buy vehicles for their day-to-day uses. Auto dealers are taking advantage of this new demand to offer rebates, incentives and low-interest loans to prospective car owners.

In addition, lenders are emboldened by studies which suggest than subprime payment delinquencies are low for auto loans. Unlike the non-prime mortgage crisis which was brought about by liquidity issues, the automobile counterpart is in no such apparent danger. This has been attributed to the pressing daily need to travel to work and back which provides the motivation for borrowers to make their payments right on schedule.

Lead Generation Techniques Utilized By Car Sellers

The growing demand for vehicles and high availability of financing options creates a need for auto finance leads generation among dealerships. Effective lead generation techniques are likely to bring in more customers in need of credit to finance new or used cars to ones storefront. Today, online lead generation is the primary mode of attracting prospective buyers, albeit old school sales tactics are also commonplace.

New Lead Generation Techniques:

Newspaper Classified Advertisements: Some dealerships still utilize this old school method of making offers to customers. The target customers here are mostly over fifty retirees in search new or used vehicles.

Radio and TV Advertising: This expensive method is mostly used only by larger dealerships that are in a partnership with carmakers. It mostly targets people working from home, as well as housewives.

Posters and Banners: This traditional method of lead generation is used to target local customers in small communities and towns.

Internet lead generation: Online lead generation for auto financing is the most touted of all lead generation techniques. This is mainly because of the leveraging power of the internet that online lead generation companies use to collect customer data. For instance, such companies can target auto-sales websites, used car domains, online banner ads, pay-per-click ad copies, online displays and other forms of online advertisements, to track prospective customer's details. This information may prove useful in separating likely car buyers from general shoppers in the market. However, online lead generation websites usually sell their information to car dealerships, making the technique quite expensive for small-scale dealerships.

Many financial agencies are upbeat about the rapidly growing subprime auto industry. Financial experts point to several factors contributing to this growth, albeit overall recovery of the credit market is a big factor. This availability of credit is creating the need for auto finance leads among dealerships in the market. A combination of the techniques described above will come in handy for dealerships in search of auto customers.