Helping Subprime Buyers Out of the Credit Crevasse
In a society dependent on personal transportation, the buy here/pay here dealers and subprime finance sources provide essential services for a significant number of Americans. Unfortunately, these classes of car buyers rank among the lower quadrants on the consumer efficiency scale. The utility derived from each dollar of income earned is well below the national norm.
Are the personal straits of this segment of the population self-perpetuating? Are they escapable? In my view, it depends on whether their current state of affairs is due to circumstance or consequence.
Circumstance Borrowers
The typical “circumstance car shopper” pulls into a buy here/pay here lot because a calamitous event dramatically altered his or her current personal or financial state of affairs. The loss of personal employment or a second breadwinner; a significant, often unexpected, medical expense; and divorce appear to be at the top of the list of the “causal” catastrophes.
In rare situations, the precipitating event is so apocalyptic that the impacted party never recovers. However, the vast majority will find themselves, at some point in the future, shopping at the local Honda dealership.
A review of online customer comments gathered by nonprime finance sources reveals a few success stories posted by circumstance borrowers that stand out from the complaints about draconian dunning and repossession tactics. One such entry reads, “I got myself in money trouble and had to finance my car with XXX. I made my payments on time, improved my credit score and have moved on.”
Consequence Borrowers
Buy here/pay here and subprime “consequence borrowers” account for the bulk of the clientele within these segments. Their fates are less certain. This group’s potential to move to a higher level of consumer efficiency depends less on their income and more on their spending habits.
Deference must be paid to a segment of the population that simply fails to earn enough income to consistently pay their bills, regardless of how diligently they toil — a societal factor that is beyond the scope of this article.
Consequence buyers are made up of roughly two groups. The first has a level of income so marginal that they can only consistently meet their payment obligations through the most judicious money management practices. The second consists of individuals who, regardless of their income, habitually incur living expenses and debt beyond what they can afford. This group spans the economic strata.
For a sizable segment of people living beyond their means, financial turmoil is generational. They’re simply perpetuating the status quo.
Stopping the Self-Perpetuating Cycle
For those of us who make our living meeting the personal transportation needs of buy here/pay here buyers and the credit resource needs of non-prime borrowers, it might seem counterintuitive to alert them to other ways to shop for and finance a car. The rationale is both altruistic and cynical.
Simply providing money management guidance to consequence buyers who are ignorant of basic budgeting skills could help them build financial stability and climb out of the credit vortex. Dealers and nonprime finance sources could make plain language guides — deftly written so as not to offend the reader — available in print and online. Such an initiative would be favorably viewed by industry regulators and consumer advocacy groups.
Correcting the Inevitable
As I learned with our regulatory compliance F&I program, changing behavior requires more than advice. To be truly effective, financial competence education must be provided within a live, person-to-person interactive format. This training can be conducted at select locations or online with the traditional AV distance education setup. This industry-level initiative would also be favorably viewed by consumer advocacy groups who might be enlisted as project partners.
My closing caveat pays homage to the realities of life. Buy here/pay here dealers will always have shoppers on the lot, and nonprime finance sources will have no shortage of credit apps to assess.
Dave Robertson
