From the Desk of Roger Douville: Collateral Lending

Author Image
by Julia Guardione
Updated on: June 10, 2019

On Collateral Lending

The amount of data at my fingertips is at times daunting. Tens of thousands of applications streaming in to our processing center provides a unique perspective of the human financial condition in today’s economy.

Generally, we have experienced a slight improvement in credit quality reflected in an increased number of applicants with FICO credit scores above 660. In 2018 the percentage of applicants with credit scores above 660 increased to 51% from 48% the year before and 37% in 2016.

But credit score doesn’t tell the whole story, does it?

The two most prominent reasons applications are denied is Loan to Value percentage (LTV) and Debt to Income percentage (DTI). What may surprise you is that 30% of applications with a FICO greater than 700 are denied for LTV.

I recognize that one of the most insulting names you could call a loan officer is a “collateral lender”…but if the shoe fits? Whether or not they would admit it, your team is rendering credit decisions based on their expectation that the auto will be repossessed and a loss will occur. We tend to focus on the less than 1% of applicants that will default and forget about the 99% that will pay.

Think for a moment about the lost opportunity in that 30%. Do your loan officers recognize what the dollar amount of the negative equity percentage is? What is the dollar equivalent to that LTV value? Is 127% LTV effectively $4,000 or is it $14,000.

What is the negative equity in dollars and would you give that same borrower an unsecured loan for that negative equity amount? If the answer is “yes” then why not grant the approval, write up the exception in the loan decision and take the title as collateral?

Always,

Roger Douville

Want to read more?

My Management Philosophy

Delinquency and Decisioning

Rising Above

 

About The Author


Julia Guardione

Julia Guardione is an auto refinance writer based in Austin, Texas. She is a graduate of Texas State University and a lover of all things outdoors.


Read More

by Caitlin Wrights

Can My Car Loan Interest Rate Change?

Your interest rate can make – or break – your monthly payment. For many of us, buying a car is a necessity. In places where public transit is limited or non-existent, it’s literally the only way to get around. As workers return to the office and find themselves commuting…

by Caitlin Wrights

7 Proven Ways To Pay Off Your Car Loan Faster

Get more financial wiggle room by paying off your car loan early. For many of us, getting an auto loan is unavoidable. The average price for a new vehicle continues to break records. In June 2022 the average transaction price was $48,043, a 12.7% increase from the year before.…

by Carter Kilmann

Can I Extend My Car Loan Term?

You can extend your car loan term — but that doesn’t necessarily mean you should. Financing is a critical component of the car buying process. And when you take out an auto loan, you’re probably going to repay it in fixed monthly installments. Considering new cars are about $48,000,…

Customer Reviews

Read our 10824 Certified Reviews

4.9

READ OUR REVIEWS

Apply Now

Lower your interest rate and drop monthly payments by an average of $96*/month!


GET STARTED