Beyond Prime Where is the line for nonprime? Definition is more than a number

Given the credit characteristics of many consumers today, it’s likely that you’re already working with customers who have encountered credit problems. If you only serve these customers, often considered nonprime, as an afterthought or try to make them fit the mold of a prime customer, there’s a good chance you’re not realizing the profit potential of these deals.

In the automotive finance sector, most refer to the credit line “beyond prime” as nonprime. Nonprime lenders make a distinction between the boundaries of “beyond prime” and the subsets of subprime, special finance and the buy here/pay here process. Customers who fit this designation can’t be defined by a credit score alone, given the disparity in lenders’ considerations. According to Arzu Algan, dean of education for the Automotive Dealership Institute, a better way to identify a nonprime customer is to look at his or her credit report. Customers who have experienced one or more of the following events are often good candidates to refer to a secondary lender: History of slow payments

• Recent bankruptcy
• Foreclosure in history
• Repossession in history
• Tax liens and judgments
• Collections and charge-offs
• High debt-to-income ratio.

Keep in mind that nonprime lenders may be prepared to accept greater risk than other lending institutions, but there are still situations that are unacceptable, such as:

• Repossessions, foreclosures within last 12 months (unless included in a discharged bankruptcy)
• Open bankruptcy
• Dismissed bankruptcy within last 12 months or multiple dismissed bankruptcies
• Current auto/rent/mortgage delinquency (60+ days)
• Delinquent child support
• Consumer credit counseling
• Income less than required
• Debt-to-income ratio exceeding the maximum
• Payment-to-income ratio exceeding the maximum
• Residence and employment history less than required
• Fraud/skip—previously reported as SCNL.

Algan says this is an important market for dealers to penetrate due to its growth (estimated at close to $100 billion by some experts) and the stabilization of the nonprime lending industry.

“Dealers are always interested in nonprime because of the bottom line,” Algan says, “but it also builds loyalty because they’re helping customers re-establish good credit.” Click Here to Download the Article.