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Catch Charge-Offs if You Can

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The rise in subprime delinquencies and charge-offs hits lenders’ bottom line but vehicle location data and analytics is putting lenders on the right track.

Over the past year, we have been sounding the alarm with lenders – warning them that mounting delinquencies and charge-offs would impact revenues and ultimately devalue their portfolios. And, while default rates and delinquencies as a percentage of total were level, we reminded them that the pool of loans was getting bigger thanks in large part to growth in the subprime market. And now, it seems the market is waking up to this news with reports of unpaid subprime loans hitting a 20-year high.

In a recent article published by Autoremarketing.com, it was reported that Equifax noted that subprime auto loans accounted for 21.7% of all new auto loans for the past four years. And according to Experian, 20% of auto loans are now held by subprime lenders, up from 2014 numbers. And as auto sales reach record highs, credit unions and banks combined have reached almost $1 trillion in loans.  Regardless of what the rating agencies report, the rate of seriously delinquent subprime car loans climbed above 5% in February alone – the highest level since 1996, according to Fitch Ratings, an increase of 11.63% year over year.

Let’s go back to that expanding loan pool we’ve been talking about – a bigger loan pool means that those past due loans are a problem, a big problem. At the same time, borrowers are getting better at avoiding collections. Some studies show that more than 1 in 7 are being pursued by debt collectors and often owe multiple lenders. How do you beat the odds and collect what you are owed?

Charge-Offs Pie
The good news is that lenders are waking up to this new reality.  Top lenders we talk to say that charge-offs really do matter. It directly effects their ability to price more competitively on the originations side, therefore losing market share. They are taking action to right the ship by including the use of DRN’s vehicle location data and analytics.  Our data helps them to connect with their customers to cure and recover loans before delinquencies get out of hand and end up as costly charge-offs. Our vehicle location data provides new DRN Locations that lenders use to find their customers and collect. Vehicle location insights are helping guide collections efforts – directing lenders to new addresses for making contact.  When you look at the numbers, avoiding one charge-off worth $15,000 makes a difference. Multiply that by 3, 7, 10 or more and lenders quickly realize the impact of vehicle location data to mitigate risk and drive revenue.

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