Vehicle lenders that service buyers with blemished credit records are making their processes faster and more accurate, the National Automotive Finance Association says.
So-called subprime lenders are cutting their losses when customers default on loans and vehicles must be repossessed, according to the association's 2005 Non-Prime Automotive Financing Survey.
More subprime lenders are automating finance transactions, the survey concludes. And most are developing credit evaluation techniques that predict risk more accurately, it adds.
The survey compiled data from 26 finance companies and banks that engage in subprime lending. It measured 2004 lending activity.
In 2004, financial institutions that specialize in high-risk customers experienced their lowest repossession losses in five years, the survey says. The average loss per repossessed vehicle dipped to $4,965 last year, down from $5,235 in 2003 and $5,044 in 2002.
Subprime lenders are benefiting from improvements in the economy, says Jack Tracey, the finance association's executive director. But lenders also are becoming more sophisticated in evaluating credit applications, he says.
"The industry is getting smarter," Tracey says. "Few companies are relying just on the judgment of a loan officer. That's going away."
Last year, subprime lenders approved 36 percent of the credit applications they received, the survey says. That figure was down from 44 percent in 1999.
"It is not high like it was," Tracey says. "They are not approving all the deals."
Three-fourths of the subprime lenders surveyed say they have developed their own credit-scoring process to evaluate customers' credit. Those lenders paid experts to refine their systems to meet unique needs, Tracey says.
The subprime finance process is faster now because more lenders are conducting transactions on the Internet, Tracey says. More than half of the companies in the survey said they typically can process a loan in less than 30 minutes.
AmeriCredit Corp., of Fort Worth, Texas, took part in the finance association's survey. Mark Floyd, the company's COO for servicing, says AmeriCredit is fine-tuning its credit scoring system for underwriting vehicle loans. It also is working harder to help customers manage their loan payments, Floyd says.
"When an account does become delinquent, rather than just dialing for dollars, we really are taking time to understand their situation and working with them to resolve the issue," Floyd says.
"It's more of a consultative approach to resolving accounts," he says. I think that has paid big dividends."
Gail Kachadourian contributed to this report
You may e-mail Donna Harris at