NONPRIME – Definition is More Than a Number

Given the credit characteristics of many consumers today, you’ve probably worked with customers with credit problems.  The epidemic of late payment histories and other credit issues has only grown more commonplace in the recent economic downturn, making nonprime more vital than ever to the financial health of a dealership.  If you only serve these so-called nonprime customers as an afterthought, or try to make them fit the mold of a prime customer, it’s more than likely that you’re not realizing the profit potential of these deals.  This is an important market for dealers to infiltrate due to its unprecedented growth (estimated at close to $100 billion by some experts), which has increased exponentially in the recent economic downturn.

Dealers have long been attracted to nonprime because of the bottom line, but the nonprime consumer population offers another, more valuable return: loyalty.  Nonprime customers have often received poor treatment during other financial transactions, and, as a result, will leap at the chance to do business with a dealer who values them.  During the recent economic downturn, poor treatment of credit-challenged customers has been on the rise.  A dealership that treats these customers with respect and accommodates their needs will breed intense customer loyalty.  In all likelihood, these customers will see the dealership as an ally, because the dealer is helping customers re-establish good credit, in contrast to the substandard treatment they received elsewhere.  These customers are often willing to travel beyond the dealership’s normal geographical boundaries in order to conduct business there; such customers are also likely to tell their inner circle how the dealership was able to assist them when their need was greatest.  And, of course, they’ll come back themselves when they are in a better position to upgrade their vehicles.  In other words, one riskier deal now may lead to a prime deal (or several) in the future. 

What Is Nonprime?

The FICO score calculated by Fair Isaac Company is the most common credit score used by dealers and lenders.  On this scale, scores range from 350 to 850.  While there is no one authoritative source for defining the tier ranges, the following FICO auto-adjusted scores have been adopted into wide use throughout the automotive industry:

In the automotive finance sector, most refer to the credit line “beyond prime” as nonprime.  Furthermore, nonprime lenders draw a distinction between the boundaries of “beyond prime” and the subsets of subprime, special finance and the buy here/pay here process.  In the current market, more than half of all consumers score below 700, emphasizing the importance of creating a strong presence among credit-challenged buyers.  This means that, if your dealership is not equipped to accommodate nonprime customers, you are literally removing more than half the marketplace from your pool of potential customers.