How Does the Surge in Subprime Auto Loans Impact the Accounts Receivable Management Industry?
According to the Federal Reserve Bank of New York, the steady rise of people falling behind on their auto loans has resulted in over 7 million Americans who were 90+ days late on their payments at the end of 2018. These millions of account holders will most likely enter collections and have the delinquency reported to a credit bureau, negatively impacting credit scores and potentially forcing more consumers into subprime loans.
An analyzation of auto loan origination data revealed $585 billion in newly originated loans by the end of 2018. However, of those originating loans, there were more subprime auto loans than ever before. Subprime interest rates on new and used vehicles are rising faster than the overall market and subprime borrowers are facing interest rates that are double that of prime loans (for new and used cars, respectively). These interest rates are the highest they’ve been since 2011 and parallel the surge in the number of auto loan and lease participants. To counteract the effect that increased interest rates have on monthly payments, some lenders are lengthening loan terms and offering borrowers terms that exceed 60 months to keep payments within consumers’ reach.
The management of subprime auto portfolios requires a unique approach. While loan default can result in the repossession or surrender of the vehicular asset, borrowers may not understand that repossession is not always the end of their financial obligation. When the vehicle is sold at auction, there may be a difference between the value, or sale price, of the vehicle and the loan balance, the difference of which the borrower is still responsible for repaying to the lender. In the case of repossession or surrender, borrowers may assume the auto loan debt is resolved or void when, in fact, the deficiency balance remains. Borrowers are responsible for the deficiency balance and expenses incurred during the repossession and sale at auction.
National Debt Holdings has experience and expertise in the area of subprime auto portfolio management. We recognize consumer brand loyalty within the automotive industry and understand that just because a consumer defaulted once on a loan or lease does not mean they will not return to initiate yet another loan with the same manufacturer or dealership. Therefore, collections activity must be conducted in a compliant and respectful manner that protects the brand and the client’s reputation.
We understand that there are many reasons for account defaults. National Debt Holdings provides consumers with multiple methods to make payments and resolve financial obligations. We also provide online access to educational and financial resources that can help to educate consumers and get them back on track towards financial wellness.
About National Debt Holdings
National Debt Holdings is a receivables management firm assisting creditors with improving cash flow performance from account portfolios. Our team understands the precise balance needed to successfully recover accounts receivable while protecting the brands and reputations of our creditor partners. National Debt Holdings is headquartered in Miami, FL.