Specialty lenders like Consumer Portfolio Services have been changing the automotive finance industry for the better for quite a few years. Once confined to fairly minor roles, indirect lenders have become the go-to sources of financing for many of today’s car buyers.
In fact, secondary lenders who purchase loans approved by dealers end up helping several parties in the process. A quick look at how this proven business model works and who enjoys the benefits will clarify why it has become so common and successful.
An Approach to Automotive Lending That Makes Sense for Many
Most car loans used to be issued either by traditional banks or specialized lenders set up by manufacturers. Financing of these forms is still important, but there are also plenty of alternatives.
Lenders who form partnerships with individual dealers and then buy loan contracts that their allies issue, for instance, have become increasingly important to the industry. Companies that enable this style of financing thereby produce benefits for involved parties like:
- Car buyers. Many people who need to purchase cars today find themselves lacking access to traditional forms of credit. Specialty lenders can afford to be more accommodating and flexible than banks which have to report to stockholders and regulators. As a result, indirect lenders open up borrowing opportunities that many would-be car buyers would otherwise not have before them.
- Car dealers. Many automobile dealers lack the resource to become authorized representatives of the major manufacturers. Even a dealer who strives to sell only top-quality vehicles will often find it difficult to earn the approval of conventional lenders. Indirect lenders who welcome such dealers into their networks enable new ways of financing car purchases. That can allow a dealer to successfully conclude deals with far more of the shoppers who walk onto its lot.
- Investors. Most indirect lenders package up the loans they buy into securities that they then sell to investors. This allows for a targeted, frequently lucrative way for informed investors to stake out new positions in their portfolios.
Leading Indirect Lenders are Setting New Records Every Quarter
Certain lenders that focus on this type of activity have been setting higher bars with their financial results for many years running. For these reasons and others, most experts feel that indirect automotive financing will be around for a long time to come.