Are you letting customers who have challenging credit walk out the door without buying? Medallion Bank has spoken with thousands of recreation dealers over the years, and we have learned that at successful dealerships, often as much as 25% to 30% of financed retail sales are considered non-prime credit.
We wanted to verify this number, so we reached out to Shawn Moran, President of RV F&I at Brown & Brown Dealer Services, Inc. Not only did he confirm what we learned, but he also said, “We love to say that 70 percent of the deals should be prime credit, and 30 percent of the deals you write every month should be non-prime.”1
If less than 30 percent of the deals you write each month are non-prime, you may be missing an opportunity for increased sales, increased profitability, better performance relative to incentive thresholds with manufacturers, etc.
Prime credit customers typically have excellent credit history and very few credit concerns. Financing a sale to them can be easy and frictionless. But the buyers who fall into the 30% non-prime credit group we are talking about are those who have credit challenges. They often have a lower score, delinquency, or even a bankruptcy.
According to Koalafi, a non-prime lender for small-ticket items, “nearly 1 out of 2 U.S. consumers is non-prime or credit invisible.” Non-prime consumers are often defined as having a credit score of 660 or below.2 There are many factors that make up a credit score calculation, such as delinquency, length of credit history, on-time payments, amount of debt used, amount of debt available, number of recent inquiries, etc.
There is a false impression that income plays a role in credit score calculations. For example, the average household income of a non-prime consumer is $70,990 per year, which is essentially the same as the U.S. median of $70,784.2 In addition to using traditional credit scores, Medallion Bank also uses a custom, in-house credit scoring system that is designed to assess risk for customers who have credit challenges. It helps us to look beyond the credit score into the customer’s likelihood of repaying the loan, and it has a proven track record.
Incorporating non-prime credit into your dealership can benefit the dealership, the customer, and you as a finance manager. If you can finance a customer who has credit challenges, the loan may help them build or rebuild their credit, and they may become a loyal customer for life.
However, not financing a customer who has challenging credit may cause them never to return. Sixty percent of non-prime consumers who financed a high-ticket purchase wouldn’t have made that purchase if there had been no financing option for them.2 Often, those who are declined due to poor credit do not go on to make the purchase at all. This can create a negative customer experience, leaving them with an unfavorable perception of the dealership.
Medallion Bank specializes in financing customers who have credit challenges. Let us help you be more successful by managing credit risk and often financing buyers who have challenging credit faster than other lenders.
Sources:
- Interview with Shawn Moran, President of RV F&I at Brown & Brown Dealer Services, Inc., July 1, 2024
- “4 Surprising Stats About Non-Prime Consumers,” Koalafi Blog, accessed July 1, 2024, https://koalafi.com/blog/4-surprising-stats-about-non-prime-and-no-credit-consumers