Selling the paper is becoming more and more a lost art in this business, but is truly what separates the GOOD from the GREAT!
All too often when a Special Finance Manager receives nothing but turn-downs and unrealistic counter-offers they give up on the deal all together. It is my opinion that ALL deals deserve a call back….period!
As you know, lenders main concern is that they actually receive the principle and interest on the contract, with minimal collection effort. Bottom line: in order to reverse a turn-down the Buyer needs to feel confident in the collectability of the contract. There are a lot of elements a Buyer will consider if and when you bring them to their attention. These elements can be summed up in the 5 C’s of Credit: Character, Credit, Capacity, Collateral, and Consideration.
Every deal has a story and a heartbeat. Looking beyond the credit score is key. If the down payment or consideration is low and the credit is lacking, the deal still may have merit based on the value of the customer’s Character, Capacity, and Collateral chosen. If the Collateral is weak, the deal may have merit based on the Credit and Capacity of the customer…etc…etc… Why is the customer, car, and payment a good-fit for the lender? Why should the lender have confidence in the collectability of the contract?
Below are tips when navigating through the 5 C’s of Credit:
1. Job Time
a. Has the applicant been at their job for more than 2 years? If not, why? Is the applicant not able to hold a job down, or did they move around because of opportunity to grow and earn more income?
2. Residence Time
a. Has the applicant been at their residence for more than 2 years? If not, why? Is the applicant not able to maintain residency, or did they move around to upgrade their standard of living with more space, a safer neighborhood, more amenities, etc.
3. Banking Relationships
a. Does the applicant have a checking account? Does the applicant have a long standing relationship with a bank or credit union? If not, why? Are banks or credit unions not willing to establish or continue relationships, or does the applicant change banks or credit unions in effort to secure the most competitive programs?
4. Change of Character
a. Is the applicant on the upswing or downswing as it relates to their character? Are their recent actions building up or tearing down their character? Why should the creditor have confidence in the applicant going forward?
1. Credit Score
a. What is the credit score of the applicant, and does the information in their bureau support the credit score?
b. Does the creditor rely upon FICO 04 or FICO 08 scores in their decision to grant credit, and does this align with what the dealership is relying upon?
c. Has the applicant recently paid off any collections or brought any payments current that is not yet indicated on the credit bureau?
2. Payment History
a. Does the applicant have a history of making on-time payments? If not, why? Does the applicant have a long standing history of not making on-time payments, or did something happen to cause their temporary inability to pay?
3. Amounts Owed
a. Does the applicant show responsibility with available credit or does the applicant routinely use-up and max-out their available credit? In the last 6 months, has the applicant been adding to their revolving debt or reducing their revolving debt overall?
4. Length of Credit History
a. Does the applicant have longstanding relationships with creditors? If not, why? Are creditors not willing to continue relationships with the applicant because of extensive collection efforts and slow pays or does the applicant change creditors in effort to secure the most competitive programs and lowest cost of money?
1. Gross Income & Net Income
a. Does the creditor know which income is “Gross Income” and which income is “Net Income” on the application?
b. Was “Net Income” converted to “Gross Income” on the application?
c. Was all “Additional Income” listed on the application? Other income may include any income where consistency and frequency is supported by acceptable documentation. Such income may include: child support, alimony, un-used student grants, regular cash deposits supported by bank statements, pension and 401K, rental income, investment income, depreciation indicated on the “Schedule C” of self-employed applicant’s annual tax returns, etc.
2. Payment to Income
a. Does the payment requested fit into the creditor’s PTI guidelines? If not, why?
b. Has the applicant recently paid off any debt or reduced any monthly payment that is not yet reflected on the credit bureau?
3. Debt to Income
a. Does the payment requested fit into the creditor’s DTI guidelines? If not, why?
b. Has the applicant recently paid off or consolidated any debt that is not yet indicated on the credit bureau?
1. Loan to Value
a. Does the requested loan amount fit into the creditor’s guidelines? If not, why?
b. Is the creditor in an equity position with the requested loan amount excluding back-end cancellable products? If not, how many payments are required before the lender is in an equity position?
c. Does the “market” support the “book value,” or does the “market” justify a higher evaluation using Manheim & Adesa Auction transaction history?
2. Loan Term to Value
a. Does the requested term fit into the creditor’s guidelines? If not, why?
b. Will the collateral last the requested term of the loan (Current Mileage, Expected Use, Vehicle Service Contract, etc.)?
1. Cash Down
a. Is the applicant making a personal investment into securing credit?
b. What effort did the applicant put into securing credit? Is the down payment the result of “found money” or did the applicant their invest time and energy into saving or building up the down payment?
a. Does the applicant have equity in their trade? If not, why?
b. How did the applicant maintain their trade-in? What condition is the vehicle in?
a. Does the applicant have credit and/or personal references that can substantiate the character of the applicant when Credit History is in question or lacking?
b. How long has the reference known the applicant? Are the references local? If not, why?
“If your actions inspire others to dream more, learn more, do more and become more, you are a leader!” John Quincy Adams
Michael Hirschfield President Cornerstone Dealer Development, LLC Direct: 920-422-4007 Fax: 888-395-0427 Mike@FoundationToWin.com
Please leave your questions and comments below.