Subprime Auto Lenders Discover New Tools for Expanding Business While Reducing Risk
A subprime auto lender wanted to expand business to new geographies, and incorporate better decisioning around the approval process, loan amounts, and how to structure a loan to specific consumers. Traditionally, this lender had been relying solely on credit reports and standard risk scores, which failed to address the nuances in today’s subprime population.
The analytical process
The Equifax solution began with initial assessments and benchmark validations to understand what happened in hindsight. In addition to running the usual credit scores, what could be done to improve the subprime lender’s decisions? In some cases, the lender lacked records, so populations were extrapolated and supplemented with real data to test hypotheses of future objectives. As different modeling approaches were layered, the lender was shown, through a process of validations, how their strategies might perform. By matching analytics to business objectives, Equifax helped provide insight that could be applied to the subprime auto lender’s future business strategy.
Expand to multiple data sources
Equifax’s solution efficiently leveraged multi-source data in the most relevant way to drive more predictive decision strategies while limiting the amount of multicollinearity, or correlation between new data assets. Starting with a cornerstone of tri-bureau attributes, which took information directly from credit files, Equifax drew tested data from positive payment databases, as well as criminal and property history data, and tiled them together to improve risk segmentation.
Incorporate third-party automotive data
Equifax also leveraged automotive valuation data to derive a loan model for subprime customers. The addition of vehicle and valuation information provided deeper insight around the appropriate terms for a subprime loan. The lender was able to better match the APR to the risk within subprime segments. This flexible model enabled a more accurate “what-if” analysis to drive profit where competition is tight.
What does it mean for you?
If you are looking to expand your subprime portfolio in a smart way, or expand into new geographic areas, think about working with Equifax to predict how your portfolio might perform using the latest in differentiated data, analytics and technology.
For more information about Equifax solutions for Automotive, please visit www.equifax.com/automotive
Image source: morgueFile
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