Survey: Lenders Need to Raise Interest Rates to Meet Dealer Needs

Offering prime, near-prime and non-preferred loans gives TD Auto Finance the ability to claim one-stop shopping, regardless of a customer’s credit rating, Wadeson said. Prime refers to loan packages offered to customers with the lowest risk of default. Near-prime and non-prime loans offer different loans, often with higher interest rates and different loan terms, to customers with lower credit scores or who do not meet payment-to-income ratio requirements for prime loans.


To secure the few loans available, Roosenberg said, lenders need to empower their front-line loan approval staff to make decisions quickly and ensure decisions are communicated quickly, especially when the agreement must be different from what was submitted on the application.

It’s also imperative that lenders effectively communicate their policies to manage dealer expectations, he said.

“It’s up to the sales rep to make sure dealers understand the risk profile so there’s no confusion or the dealership sends offers that don’t fit the risk profile. “, said Roosenberg.

Dealerships will choose to do business with lenders based on speed of turnaround, said Steve Chipman, president of Winnipeg-based Birchwood Automotive Group, which has 21 dealerships in Manitoba, Saskatchewan and North Dakota. But lenders also compete for the business based on the reserve, or how much lenders pay dealers to complete paperwork, Chipman said.

“We submit to multiple banks at once,” he said, “and when we see the approvals coming back, it’s usually the fastest back that gets the deal. But the banks pay us to do paperwork, and different banks pay different rates. Dealers will give a bank with a higher reserve a bit more leeway in time, he said.

Some banks offer the ability to complete documents using electronic signatures, another competitive advantage dealerships appreciate, Chipman said. “Banks that offer e-sig make it easier to do business with them,” he said.

Electronic signatures are a relatively recent addition, Wadeson said. As recently as early 2020, some banks were still requiring dealers to fax forms, he said.

Captive finance companies, owned by some of the automakers, are at a disadvantage in today’s market, Chipman said.

“There are no incentives right now due to the lack of supply, so captive finance companies aren’t as competitive right now,” he said. This is especially true as the slowdown in sales leaves banks sitting on a surplus of money that they are eager to lend.

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