Alternative Data for Subprime Auto Lending
The appetite for subprime auto lending has returned. Delinquencies are falling, and finance policies have loosened from the restrictive standards seen at the height of the recession. But to protect your loan portfolio and gain better insight into your customers, you’ll need better data, smarter risk metrics and dead-on pricing.
A case study
A client came to Equifax with a challenge. Having yet to establish a direct channel to consumers, the lender was analyzing and buying loans from dealers and dealer groups who had issued deep subprime auto financing to their customers.
When the dealers couldn’t get their loans bought through the indirect channel, they made the interim loans themselves. They would bid on these loans, pulling traditional credit files to determine what would constitute a good offer for the loan. Of course, the credit scores are commonly very low and less predictive on these loans, so they were essentially flying blind.
The lender needed deeper data to better assess risk when buying these loans, and the Equifax Insight Score for Credit (ISC) was the answer.
Leveraging alternative data
ISC helps identify risk and opportunity in the subprime market using a predictive score blending traditional credit file information with non-traditional payment histories, such as wireless, landline, subscription TV and utility payments.
Complementing with this alternative payment data provides unmatched insight into nearly 200 million consumers with little, no, or less than average credit.
ISC provides insight that is vital to assess risk and set pricing. In subprime auto lending, the thin file percentage is substantial. The ISC score rank-orders risk within traditional score bands and can be combined with certain generally available and custom traditional credit risk models when available for added stability and confidence.
Alternative data for subprime auto lending
Alternative data is a key to better assessing risk for subprime auto lending. With the Insight Score for Credit, clients with subprime loan analysis challenges will be armed with strategic data that allows them to make more informed bids for loans.
That reduction of risk with increased insight allows subprime lenders to tap into a previously unknown and unseen market. With solid alternative payment history information, the Equifax Insight Score for Credit gives lenders an opportunity to expand their loan portfolio, competitively price risk and better manage their portfolios.