by jguardione

From the Desk of Roger Douville

Refinance loans a viable option for loan growth

Growing and sustaining a consumer loan portfolio is a daunting task. I speak with the heads of many lending departments across the country about loan growth and how to get it. So many lenders turn to indirect in their haste to satisfy their appetite for loans. There’s no doubt that a well-funded, well-executed indirect program can pad your loan outstandings quickly, but indirect lending comes with unique risk and is expensive to acquire and manage. Of particular concern is the indirect treadmill many lenders find themselves on when the indirect portfolio starts to run off at 22 – 24 months, adding to the expense of acquisition.

On the other hand, the advantages of refinance auto loans may offer an alternative to the traditional indirect treadmill. Refinance loans typically stay on the books for approximately 33 months. Some clients report even longer periods of 36 months! Another advantage that contributes to positive performance is the fact that your underwriters can see the performance of the borrower on the exact collateral you will be holding. It takes some of the mystery away.

While lowering the interest rate on the previous loan may be part of the reason for the refi, the primary motivation is payment relief. True, there may be an underlying reason or financial stress driving the refinance that your underwriters may have to uncover. For the most part, people are simply looking to save money, make room in their monthly budgets, or add a vehicle service contract to protect themselves from a budget busting event. And with better built autos lasting longer (and costing more to repair) doesn’t a refinance request give you confidence that the borrower is taking control of his/her finances?

So how do refinance loans perform? Quite well, thank you. My lender base reports that delinquency typically outshines an indirect portfolio with losses in the .45% range. Delinquency depending on the aggressiveness of your underwriting and collection team land in the .75% range.

Refinance, like any lending initiative requires a lot of heavy lifting handling many moving parts. If you feel you may not have the assets to pull off the operation, then explore partnerships with proven companies that can get you there. You’ll be glad you did and your loan portfolio will be healthier because of it.

All the best,

Roger Douville
VP of Lending Services, rateGenius, Inc.

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