Approvals Rise as Funding Rates Worsen, Exclusive Survey Reveals

Although overall approval rates are higher this year, application funding rates for subprime credit have fallen, according to a recent best practices survey conducted by The Center for Auto Finance Excellence.

Meanwhile, delinquency and loss rates have worsened — particularly on subprime — and lenders are still spending more, specifically on technology and compliance.

The best practices survey received responses from a variety of auto finance professionals. Following are key takeaways from the results:

Approval Rates

Overall, 39% of respondents said prime approval rates got higher or much higher this year, as compared to last year, while 39% said approval rates are unchanged.

Additionally, 30% of respondents said subprime approval rates are higher or much higher this year, while 15% said approvals are unchanged.

Application Funding Rates

Prime application funding rates are mostly unchanged year over year, according to the survey, while subprime funding rates are lower.

Overall, 33% of respondents said prime funding rates are higher or much higher and 48% said they are unchanged. For subprime, 37% said funding rates are lower, while only 19% said unchanged.

Origination Volume

Prime originations are mostly unchanged — 28% of respondents said prime volume is higher and 11% said lower.

Meanwhile, subprime volume received mixed results; 33% of respondents said subprime originations are higher, while 26% said the exact opposite.

Lenders also offered mixed results on new versus preowned financing volume. About 26% of auto finance professionals said new volume is higher than preowned this year, while 30% said unchanged and 26% said it’s lower.

Delinquencies

According to the survey — and in line with industry-wide credit trends — most respondents agreed that delinquency rates for prime and subprime are higher. Only 22% of respondents said subprime delinquencies are unchanged, while a majority — 51% — said they are higher or much higher.

When lenders were asked what they are doing to reduce delinquencies, many answered “changing underwriting guidelines,” according to the survey.

Lenders were asked what are you doing to reduce dlinquencies. Most said, changing their underwriting documents or changing collection practices.

Defaults

A majority of respondents also claimed subprime default rates are higher — 53% — and only 22% said they are unchanged. Meanwhile, only 32% said prime default rates are higher, as compared to 39% who said defaults are unchanged and 11% who said they are lower.

Compliance Costs

Compliance continues to be a core focus for auto finance professionals, with 67% of respondents claiming costs are higher or much higher this year.

Additionally, in terms of money and/or time allocation, more than half of respondents — 63% — said they are allocating higher resources to compliance.

Also of note, when lenders were asked which areas they need the most and/or better information, a majority — 54% — responded with “compliance management.”

Repossession Rate

Prime repossessions are mostly unchanged, while subprime repossessions are higher or much higher this year; 48% of respondents claim subprime repossession rates are higher, while 50% of respondents claim prime repossession rates are unchanged.

Greatest Challenges

The final question in the survey was open-ended, and asked auto finance professionals what their greatest challenges are this year.

The results were mixed, but most responses centered around compliance — from “complying with confusing regulatory regime,” to “getting dealership owners to understand importance of compliance.”

Other responses include: finding qualified developers, keeping up with changes in the market, “technology adoption, data management, and staying consistent in underwriting practices while maintaining volume against competition.

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