Subprime leads and online auto leads have been helping low-income individuals and families have access to auto finance leads they wouldn’t have otherwise had access to. Subprime lending refers to creditors who have a 400-600 credit score, gaps in repayment such as medical needs or unemployment or those unable to provide a proof of income. Buyers with credit scores of 500-600 are considered subprime and those with scores ranging from 300-500 are considered deep subprime. The creation and implementation of subprime auto leads in the United States originally was to create opportunities for low-income families and minorities to receive leads for car and home loans and thus, created online auto leads; the subprime market giving millions of people access they wouldn’t have had. The downside to this is creditors, in turn for being low-income and high-risk, receive these loans with higher interest rates and more collateral necessary. The tremendous downside was the 2008 Financial Crisis, these subprime loans were repackaged as Mortgage Backing Systems (MBS) and then many were defaulted on. As a result, the subprime lender comes with a cautionary tale. When used for good, however, the subprime market for auto and home can be used as a somewhat “second chance” loan.
So how can subprime marketing help your dealership grow? Subprime financing interest generates $10 billion in annual revenue. In layman terms, there’s an untapped market of buyers that have yet to have bene utilized. Online auto leads and car finance leads are good indicators of subprime auto leads as only 36% of people purchased a car outright.
Start with online auto leads as many subprime lenders begin by weighing their options online. Low-income families tend to opt for variable interest rates to account for lower monthly payments, however, the average duration of a new car loan rose to a record 66 months and a record 62 months for used cars, as lenders wrote more five-year, six-year and seven-year loans so that buyers could afford the monthly payments on vehicles that have grown more costly. Although the subprime market is rich per se, delving into it will need an ‘ere on the side of caution.
When speaking with subprime loaners, reassure them that past financial hiccups aren’t future indicators, just a caution flag; that the average borrower has $17,966 in auto debt; that the average auto loan interest rate is 4.16%; and that subprime lending was created as a second chance safety net. Subprime is meant to be a gateway, a meant to improve.