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That customer's claimed income may be too…low

Study finds buyers get income wrong on both ends

Dealerships and lenders take heed.

Strange as it seems, it's not uncommon for people, when they fill out credit applications, to mistakenly understate how much they earn. That means that a customer could qualify more easily for financing than it appears, or qualify for more financing than expected, if their income can be accurately verified.

"There is an opportunity to maybe buy deeper," said Craig Leabig, senior director of product management at Equifax Verification Services, during a Webinar Tuesday hosted by Equifax and Moody's.

And a customer who qualifies for a larger new-car loan can, of course, bundle more F&I products into that loan.

Honest mistake?

It's far more common for people to overstate rather than understate their income, either through an honest mistake or "intentional misrepresentation," Leabig said during the Webinar, titled "Automotive Credit and Lending Outlook."

According to Equifax data, the tendency to overstate income increases at lower income ranges. But consumers get the numbers wrong both ways.

Leabig said that in a large sample Equifax examined for a subprime lender, 58 percent of customers with an income of $15,000 or less overstated their verifiable income by 15 percent or more vs. about 16 percent of customers with incomes in the $15,000 to $30,000 range.

Conversely, he said, about 12 percent of customers in that lowest range understated their income by 15 percent or more. About 25 percent of customers in the $15,000-to-$30,000 range did, he said.

"Self-reported income is a hazard," Leabig said.

Job tenure

Meanwhile, he said, Equifax data shows job tenure correlates with a customer's propensity to state their income accurately and also to pay on time -- even if the customer's longest tenure was at a previous job, not their current one.

Auto delinquencies of 90 days or more were less than half as likely for customers with 10 years or more in the same job vs. customers with a year or less in a job, Leabig said.

His conclusion: "Job tenure matters."

You can reach Jim Henry at autonews@crain.com

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