More cautious underwriting choices on auto loans

The automotive market can’t repeat the kind of careless decision-making by car loan underwriters that led to the subprime bailout. Lenders didn’t adequately weigh the chance of financing to consumers who were hard-pressed to repay, leading to excessive loan default. Wards Auto reports this has led automobile finance companies to take a closer look at incoming auto loan applications.

All the details are needed in car loan underwriting

In order to get approved with a credit history that isn't quite up to speed for a car loan, there has to be greater attention paid. A Scenario in which the borrower’s credit rating has some dings but does not indicate serial loan default can be workable, said Price Waterhouse and Cooper Consumer Financial Group senior manager Douglas Ekizian. Sometimes it seems clear the applicant has the ability to pay back the loan. In these cases, the underwriter makes a decision based on the consumer's history.

A car loan underwriting decision is something that is made with lots of information. It’s easier to do with more information. Ekizian explained that analysts can do "more than a cursory review of credit-bureau forensic analytics," when there is full income and employment data.

Auto lending is a gut call

The detail is really essential to help an auto loan underwriter to figure out when and when the loan won’t default. Alliance Acceptance CEO Ray Thousand explained this. Often, a default right after job loss is something overlooked. This is only the case as long as there are not any problems with a credit history. If a bankruptcy is showing up on a borrower's report, consumer risk finance manager Adem Yilmaz of Toyota Financial Services explained the borrower can still be considered now that the credit sector for auto loans has relaxed.

"Determining willingness to pay back a loan is the gut call of the day. We're looking for evidence of ultimately trying to make good on the loan," said Thousand.

Auto loan defaults: Children of recession

The U.S. economy really struggled in 2008 and 2009 which was when there were the most auto loan defaults. Several of car loan corporations either had to get bailout dollars or went bankrupt because of this. With careful underwriting decisions, the auto financing business hopes to stay away from the mistakes of the past.

Citations

Wards Auto

wardsauto.com/home/auto_loan_analysts_110204/

Understanding the role of loan underwriting

youtube.com/watch?v=Q7OvlYjNt9w