Boat dealers aren’t losing subprime deals because they can’t get the loans bought. They’re losing them because they don’t explain the terms well enough to the customer — who often doesn't understand why terms are worse for him now than they were just two or three years ago, even after the recession had hit.
That’s according to Jared Zimlin, business development director for Priority One Financial Services, a company that contracts with dealers to help them get loans financed through lenders.
“The approval ratio is lower for subprime than prime,” Zimlin told Soundings Trade Only. “But the approval ratio is higher than the funding ratio.”
That is to say, more deals get approved than actually get finalized.
“Some dealers get approval, but they can’t close the deal,” Zimlin said. “They haven’t set the customer up properly.”
That’s because customers had secured premium financing even after the recession began. Dealers have to explain that recreational loans don’t come with the same criteria as an auto loan, for example.
Additionally, many credit card holders saw their credit limits get slashed about two years ago before new consumer finance laws took effect, Zimlin said. Because they would have to disclose all fees prior to changing them, several banks tightened credit before the laws took effect.
Home equity lines also were cut because mortgages began to experience a high default rate. As a result, people were getting their available credit bumped down because of a less favorable debt-to-income ratio, sometimes without them even knowing, Zimlin said.
“So someone who had a 720 credit score, now they’re at 690,” Zimlin said. “They come in thinking, ‘This is going to be easy. Here was the rate I was at,’ and suddenly they’re not where they think they are in recreational lending. It’s nothing they did wrong. They didn’t stop making payments. It’s just the landscape that changed.”
Zimlin says he tells customers that they can still get the deal bought, but he explains what the terms will be.
“I tell them they can still go back and refinance in a year, but in the meantime this is the payment they will have and they can still get out with their family and enjoy the boat,” Zimlin said.
It’s important for dealers to work with several lenders and know the varying criteria for each. Submitting several loans that don’t meet lenders’ criteria causes them to reject many more than they otherwise would, Zimlin said.
“Not all prime lenders lend the same and not all subprime lenders lend the same,” Zimlin said. “Dealers need to understand those different rules.”
Read more about recreational lending in the January issue of Soundings Trade Only.
— Reagan Haynes