What is the difference between outside financing, subprime, and in-house financing?
With outside financing, a dealer has access to a bank or a credit union. A lot of used car dealers or new car dealers will have certain banks and certain lenders that they work with on a regular basis. And they'll go to those financing sources to try to get approval for a customer.
Subprime means the customer has marginal credit, but not really so bad that you can’t get credit somewhere. Some places provide financing for people who have marginal, dinged up credit but they are also a high interest rate. They don't necessarily provide as much opportunity for customers as might be thought. They'll finance more cars that are higher priced, but that could also lead the customer to a situation of having a long-term finance contract where they’re always in a negative equity position.
Whereas Auto Pronto never goes over three years on any of our contracts. So at the end of three years, our customer gets the title to their car. A lot of subprime financing and outside financing sources finance cars for six, seven, 8, nine or even 10 years. And they’re always in a negative equity situation. They’re always down in their car and always owe more than it's worth.
So those are things to watch out for in both outside financing and subprime.
In-house financing is where the dealership that you're dealing with has their own financing source available to them. Buy-here pay-here provides in-house financing because the dealership either in and of itself or through a related finance company can make the financing decision in-house and on the spot so that the customer doesn’t have to go outside to a second secondary source to seek financing. Decisions are made at the dealer level, basically.
At Auto Pronto, we determine if someone is approved for credit. They'll fill out a credit application and we'll take their information. Provided that they have a decent residence stability, a decent income of generally over $1,000 a month net income. We look at if they’ve been in the area a decent amount of time, if they have any previous buy-here pay-here credit that's recorded or any previous outside financing that's reported to credit bureaus. That does help their situation.
They should also have need for a vehicle. If they’ve got four or five vehicles sitting in their garage and they want a six or seven, we're probably not the best option for them. But if they don't have transportation or have come out of a car that they got repossessed, or they just totaled their car, or whatever might happen in their daily lives -- if they have need for a vehicle and have the ability to make payments and stability in both their work and residence, we're gonna do our best to extend to them the opportunity to have a vehicle.