Question Of The Day: When Financing A Car, What Information Should Be Fair Game?
Your personal information is valuable.
When I liquidated vehicles for Capital One, we typically examined over 14,000 variables before lending out our money to a customer.
Any customer. A credit card. An automobile. A commercial loan. It didn’t matter. We needed to get to know the economics of you first.
All of the low rates and big profits were dependent on buying your personal information, and then crafting decision models and metrics to determine your personal risk.
Our success in auto finance generated low rates for our customers and low delinquencies for our investors. But they both could have been far lower.
There is a line of demarcation between what is private, and what is public.
Your payment history? Public for the most part. There are those landlords, small money lenders and car lots that don’t report your credit history. But most utilities, credit cards, mortgage companies, and auto finance companies do so on a regular basis.
It’s a trade. You get money. They get the opportunity for a profit. Along with the right to buy and sell the resources needed to make sound future decisions.
Even the low tech version of a customer’s credit history work fairly well. Pay stubs, utility bills, bank statements, references, and recent housing information are typically used by car dealers to determine your eligibility.
So are criminal histories. In certain areas of this country you can type in a person’s name , state of residence, and the word “mugshot” or “arrested”. Or even access a state information database that records prison histories.
Lo and behold, you may see a familiar face staring right back at you.
All of these things are publicly available. But what about a few of the private things? Should they be fair game too?
If you were financing a car to a complete stranger, wouldn’t you want to know their recent accident history? Or the number of times over the last few years that their insurance was dropped due to non-payment of their premium?
I had three customers who wrecked their cars so far this year. Thankfully, they all kept paying on their full coverage insurance with a $500 deductible. That alone made a $13,000 difference to my bottom line.
A credit union that had the means to examine this behavior could make a lot of better decisions for their members.
A lot of insurance companies these days levy their premiums based, in part, on a customer’s age.
I am not convinced if that is always a fair way to measure risk.
That rare young adult who has managed to find a stable good paying job. Or that student who has earned a free ride to school and kept their GPA on the high end. I think they are far more responsible and creditworthy than that fifty year old who has consistently wrecked cars and dropped their insurance.
So where should that line be?
Should certain resources that are now publicly available become private?
Should other things that are only available upon a special request, become just as accessible as your credit report?
It’s a tough question. Ponder it.
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- 3-On-The-Tree Lou_BCone of many cars I sold when I got commissioned into the army. 1964 Dodge D100 with slant six and 3 on the tree, 1973 Plymouth Duster with slant six, 1974 dodge dart custom with a 318. 1990 Bronco 5.0 which was our snowboard rig for Wa state and Whistler/Blackcomb BC. Now :my trail rigs are a 1985 Toyota FJ60 Land cruiser and 86 Suzuki Samurai.
- RHD They are going to crash and burn like Country Garden and Evergrande (the Chinese property behemoths) if they don't fix their problems post-haste.
- Golden2husky The biggest hurdle for us would be the lack of a good charging network for road tripping as we are at the point in our lives that we will be traveling quite a bit. I'd rather pay more for longer range so the cheaper models would probably not make the cut. Improve the charging infrastructure and I'm certainly going to give one a try. This is more important that a lowish entry price IMHO.
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- Ger65691276 I would never buy an electric car never in my lifetime I will gas is my way of going electric is not green email
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I'm all for tough lending standards. The harder the better. I use to work in the mortgage industry and I saw plenty of loans that were approved by Fannie Mae (not the mortgage company) to people that had no business owning a home. Fannie Mae gave us money to market to those people. Homeownership for everyone! One classic story is of a couple that got an low rate two-year ARM loan above the purchase price of the home. They took that extra money and paid off student loans. When when the low-rate went away, they stopped making payments for a year and then turned the house back over to the bank. They even went out and bought a new car when it was all done. (Oh, and then had to turn in the car due to not making payments.) I hope those days are long over...
14,000 variables? How does that work?