While acquiring new customers in today's increasingly competitive market may seem like a daunting task, auto lenders can benefit by looking at more than one measure to understand the ability to pay. By incorporating additional layers of data, such as verified income and employment data, auto lenders may be able to unlock a new market of consumers that may have otherwise been overlooked.
According to Equifax data, nearly 20 percent of all consumers with a subprime credit score are financially durable, pointing to an untapped market of potentially attractive customers.
Yet according to auto trends data from Equifax, as of November 2021 only about 17 percent of auto loan and lease accounts were issued to subprime consumers — the lowest October year-to-date subprime share since 2010.
The same Equifax research also shows the leading reasons consumers with subprime credit scores are denied loans are debt-to-income ratio and credit history (which includes credit score) at 33 percent and 23 percent of denied loans, respectively.
While traditional credit scores remain a strong indicator of creditworthiness, today's consumer may be more complex. Leveraging alternative data sources, such as income and employment information, in the decisioning process allows lenders to see a more complete picture of a borrower's ability to pay. This can broaden the pool of potential consumers for lenders, leading to more conversations.