Learn the Techniques to Get More Dealers Approved

If you want to be one of the best in Special Finance, you have to know the guidelines of each finance company – the black and white ones as well as the gray ones.  If you know the guidelines better than your buyers, you will be able to put more deals together each month.  This is the competitive edge that the best dealerships have in Special Finance. Let’s look at some of the gray areas of financing and what you need to know about them.

Lack of Computerized Proof of Income – We do not always get the preferred “computerized” check stub from our customers because they don’t have them. Learn which finance sources will work with the less than ideal proof of income. For example – Americredit (at this time) will take four consecutive cashed (must have copy of front and back with bank stamp showing authentication) hand written personal checks as proof of income. Regional, Tidewater and Chase Custom will flex the guidelines as well. Capital One and Tidewater will take three consecutive checking account statements as proof of self employment income (there must be no NSF activity on the statements). CPS will accept three months of hand-written checks with ledger backing up deductions and cancelled copies (front and back) of checks to back up authentication.

No Solid Proof of Income – Some finance companies will not require proof of income if the client falls within a certain tier in their lending structure. For example, Wells Fargo will accept a middle tier deal with no proof of income in most cases. This is important since some clients have on-the-side-cash income which can not be proven; with this option available to you that’s no longer an issue. Nuvell, Tidewater and others have the same option in some situations. To make a deal score better on the computerized score card, also known as the “gatekeeper”, always send a structure at less than 100 percent LTV and on a term no longer than 60 months. Due to computer generated score cards, the structure can sometimes bump the deal to a higher tier allowing for more flexibility in lending and stip requirements which will improve your chance for an approval.

Self Employment – What proof does the finance company require for a self-employed person? Or will the finance company accept self employment at all? CPS will not accept self-employed applicants. Most of the others require two years of scheduling, but you may get someone to agree to take hand-written personal checks and three months of bank statements. For example, Crescent, Capital One, Regional (officially some will claim they don’t but ask for it) and Tidewater will take three months of bank statements. If someone has been self employed for four months and their bank statements can support the income they claim they’re making, your deal is done.

False Credit Scores – Always use a favorable structure (less than maximum loan to value) on deals that score well but have false high scores.  Do the same on deals that have good trade lines but for some reason the score on the credit report is not good. Using this structure (as long as the minimum score for the bank guidelines and minimum income is met) will get you more approvals to sell cars.

Previous Employment Gaps – This is important to know when a client has had a substantial job gap in the past three years. This will usually be an issue when a client has been on his/her job for less than one year. You should try to use sources who do not verify previous employment. HSBC, Chase Custom, Nuvell and Capital One are some examples.

Multiple Bankruptcies – If you get an approval and you know the bank guidelines do not permit multiple bankruptcies, always send the bankruptcy discharge for the most recent bankruptcy. Obviously the computer has missed the extra bankruptcy and with supplying the discharge you are giving them no reason to look on paper. At this time, Americredit, Capital One, Overdrive, Chase Custom and Tidewater are some of the finance companys who will do multiple bankruptcies.

Fixed Income Gross – You should know which banks allow you to gross up the income of someone on a fixed income.  By doing this you may meet the minimum barrier or allow for additional payment to put a deal together. For example, Wells Fargo’s minimum monthly income is $2,000. You have a client who earns $1,290 on his job and $598 in Social Security; that equals $1,888. If you send that application in, it will be an automatic decline. However, gross up the $598 by 1.3 and it is $777 – suddenly the client now has $2,067 in monthly income. You now have an income which will not cause an automatic decline.

Minimum Rent Factor – If a bank charges a minimum rent factor and the client has a tight debt ratio, the deal may not work. However, a bank that takes the actual rent paid can budget the client for the additional vehicle payment, and you’ve just turned a decline into an approval.

Combined Income – If income is an issue and a bank will allow it, combine two incomes to meet the minimum income criteria, and you’re more likely to have a bankable deal. For example, we have two people. One makes $1,025, and the other gets $598 in Social Security. CPS required a single income to be at least $1,200, yet HSBC will combine these two incomes at $1,623 and they will qualify.

Booked Trade Ins – Usually, you need 10 percent down on the deal. If the bank does not book the trade, you can show the minimum down payment in trade allowance. For example, Triad does not book trade ins and your customer has a 1991 Ford Tempo to trade, which is valued at $1,250. Record the $1,250 trade in, and you have met your minimum down payment criteria.

Primary Credit Reporting Agency. – This is important because a repossession may show on TransUnion report, but not on Equifax. HSBC in this case is likely to pick the deal up because they pull Equifax in many areas.

Limited Time on Second-Job Income – You need to know what the banks do in situations where customers have second-job income. If a client does not budget without the second-job income, you need to make sure you can count it. For example, CPS requires one year on the job to count the additional income. Verify this before CPS does because if the customer hasn’t been there one year, you will probably have a deal that isn’t fundable!

Get Overtime to Count – Once again, we have a deal that sits on the line due to debt ratio. Most banks take year-to-date after three months, which can hinder getting overtime income included. Be careful with this because after the first of the year (unless you have the pervious year’s W-2) most banks will only count base pay at full time, which doesn’t include the extra income from overtime.

Minimum Credit Score – Which banks will buy a deal regardless of score? Someone with a 435 score, but some good trade lines will not be an HSBC deal because the minimum score is higher than 435. Do not send deals that will hit the credit score grid and won’t make it any further. This is costly to your bank, and they will look at the portfolio and assume you don’t know their guidelines. Credit officers recognize competent Special Finance personnel and if you win their vote on knowledge, you are more likely to talk them into that “gray area” deal because they know you know your stuff! The person who sends the 435 score to HSBC and then calls to rehash the deal will probably get a cold reception because the buyer will question the knowledge behind the phone call.

A Greater Advance – If you need a greater advance to trade with the customer, always use a favorable structure when submitting. This is a structure at less than 100 percent loan-to-value and on a term no greater than 60 months. Once the approval is granted on a higher tier, then you can ask the finance company for the exceptions you need. For example, Capital One has a line three advance of 115 percent plus tax, tags and license, however if the customer scores out as “preferred”, the loan to value can be up to 125 percent plus tax, tags and license on line three. If you get the customer to score on these higher tiers and there is some negative equity in the trade in, the extra 10 percent advance might suddenly make the deal. Americredit also has flexibility for a customer who scores higher in their system. Always ask; the worst they can say is “no.”

Two things in closing.  First, while the specific tips may apply today for the finance companies mentioned, all guidelines are subject to change.  Second keep your ear to the ground for any changes so you can stay on pace, allowing you to work smarter and put more deals together than your competition.  
 
Vol. 1, Issue 3