Westlake Financial Services and Equifax now have more data to support their argument that subprime auto financing can benefit individuals with soft credit histories, rather than create a negative situation some regulators and consumer advocates might believe.
Equifax recognized Westlake Financial Services on Tuesday as the national finance company whose customers saw the highest credit score increase over the term of their loan. This development was a follow-up to a white paper Equifax released extolling the significant benefits that subprime customers can receive when they got a second chance by successfully paying their vehicle installment contract.
According to Equifax research data, when comparing a national sample of 125,000 customers with auto loans originated in the 2014 calendar year, Westlake Financial Services customers produced the highest average credit score increase over the term of their loan.
“We focus on a loan structure that works long term for the customer, which helps increase their credit rating as payments are made over time,” said Westlake Financial Services group president Ian Anderson, the recipient of last year’s SubPrime Auto Finance Executive of the Year Award who is expected to a panelist again during this year’s SubPrime Forum during Used Car Week.
“Westlake strives to make our customers’ lives better,” Anderson continued. “By helping our borrowers increase their credit scores, we make it easier for them to qualify for loans and purchases in the future.”
Two of the most recent Equifax white papers highlighted the positive elements of subprime auto financing.
Last summer, Equifax chief economist Amy Crews Cutts and deputy chief economist Dennis Carlson highlighted the position in a white paper titled, "Not Yesterday’s Subprime Auto Loan." They reiterated the importance subprime financing to the future of consumers who have damaged credit profiles. The Equifax economists noted the positive consumer ramifications well known to finance company executives at institutions that specialize in subprime contracts such as the importance of quality transportation to enhance employment opportunities and how steady payment performance can possibly lead to a rise toward prime status.
“If a borrower with subprime credit obtains a loan from a financial institution that reports the complete payment histories of their clients to the national credit reporting agencies, and that borrower makes timely payments on that loan and other credit obligations, then over time that borrower’s credit score will likely improve, possibly enough to qualify for prime credit terms,” Crews Cutts and Carlson said.
Then at the beginning of this year, Equifax again found data that clearly backed up the claim, which the company shared in a report titled, "Subprime Auto Loans: A Second Chance at Economic Opportunity."
Equifax determined that over a three-year time period, those consumers with deep subprime credit scores that originated a subprime auto loan showed, in aggregate, a significant increase in their credit score. In fact, analysts highlighted those consumers improved their credit score by a median of 52 points, which is a 62.5-percent improvement over the median score change of the group that did not take out a loan.
And now the industry has the performance of Westlake customers to refute naysayers’ claims about the possibility of finance companies taking advantage of subprime customers.
“Westlake’s interest in our original article prompted us to examine, at a lender level, where the improvements of subprime customers graduating to near-prime and prime standing was the greatest,” Equifax auto finance leader Lou Loquasto said.
“Westlake and other subprime lenders like them should be lauded for giving the right customers the right loan, and for enabling them to get back on their feet,” Loquasto went on to say.
Discussions and industry highlights are all on tap to be a part of this year’s SubPrime Forum, which is set for Nov. 16-18 at the Phoenician in Scottsdale, Ariz. Registrations are already open and sponsorships are also available. More details can be found at www.usedcarweek.biz.