Auto lending has many perks, including helping valued customers by helping them get into a vehicle they want or need, building and deepening relationships with your borrowers, and ultimately, creating a vital stream of interest income. However, lending also comes with unique challenges such as delinquency, insurance tracking and placement, and worst-case scenario, repossession.
Even if you do everything that you can to avoid it by running a streamlined and efficient collection operation and working with your borrowers when delinquency becomes a problem, sometimes it's an inevitable part of the lending business. In my experience working with lenders in the repossession business, no one ever wants to repossess a borrower’s vehicle—it’s a lose-lose for everyone involved, but unfortunately, sometimes that is the only option you may have to recoup your assets. However, consider what repossession can really cost your financial institution:
Repossessing a vehicle is time consuming. Your collection staff has to take time away from their regular duties calling delinquent borrowers to contact all of the third-party vendors that it takes to repossess and remarket the vehicle. Then, they have to see the process through from start to finish. Depending on the vendors, and their ability to effectively skip, it can take weeks of follow-up, and without a streamlined process in place, the communication process can be disjointed.
Furthermore, when your collections staff is spending their valuable time managing the repossession process, they are not on the phone making contact and/or receiving payments from early-stage delinquent borrowers, and when borrowers fall further into delinquency, the higher the chance that they could potentially experience repossession.
2. Actual Dollars
An inefficient recovery process could cost you actual dollars, not just time lost. The asset recovery industry is complex—it involves multiple vendors—repossession agencies, transportation companies, and auction facilities. When you have a partnership with a national remarketing agency, you can gain access to better rates that are based on volume. Further, you gain access to expertise that comes from working with hundreds of repossession vendors nationwide. A remarketing agency has programs designed to help lenders maximize returns at various auctions to gain the highest possible return on assets. An internal lack of expertise can truly impact your bottom line.
3. Member Relationships
I think I can be presumptuous here and say that repossessing your member’s vehicle is probably the last thing that you want to do. While repossessions cause deficiency balances and lost income loss for your institution, it also negatively impacts your borrowers, which, in turn, impacts your relationship with them. Even if you worked tirelessly to help them avoid repossession, when it's all said and done, they will still view you as the one who repossessed their vehicle.
Consumer payment behavior has shifted, making a streamlined collections process more important than ever. Join us for a live webinar on April 28, where we will discuss this shift, why it has occurred, and how lenders can get ahead of the curve.