LAWRENCEVILLE, Ga.—Managing automobile collateral and residuals more effectively are keys to improving the underwriting process, according to a new white paper.
The Black Book white paper illustrates the importance of how collateral and residuals can help lenders manage risk levels appropriately and confidently, as well as facilitate the ability to identify continued pockets of profitability, particularly for longer-term loans, the company said.
Access to collateral insight and residual data can help identify the right vehicle or segments, especially in an environment where loan terms are stretched out beyond 60 months, stated Black Book. “What’s more, collateral and residual data can team together to help lenders identify their tolerable inequity levels and set terms accordingly in order to minimize risk and accelerate profit potential.”
The paper also addresses specific vehicle segment examples that show how different vehicles reach a position of equity at different intervals. And while historical depreciation trends can help lenders determine varying degrees of risk for the vehicles in consideration for a portfolio, the paper also shows how lenders can maximize profit potential while minimizing this risk.
“An increasing number of lenders are realizing the importance that collateral and residuals can play in the underwriting process, and it all begins with access to accurate vehicle data,” said Barrett Teague, vice president of Black Book Lender Solutions. “This practice will only become more important as auto loan terms grow beyond 60 months and interest rates eventually rise, placing more pressure on the ability to minimize risk while remaining profitable.”
Black Book’s free white paper, “Vision 20/20: Using Residuals To Spot Portfolio Growth Opportunity”, can be downloaded by clicking here.