The world of automotive finance is more complex and dynamic than many people realize. While traditional means of financing vehicle purchases are still common, there are newer and more specialized alternatives that benefit many buyers greatly.
Indirect lenders like Consumer Portfolio Services, for example, function according to a distinctive business model that has proved highly viable and profitable. A quick look at how such secondary lenders operate will reveal that all the important details have been accounted for.
A More Modern Approach to Automotive Lending
Most new car purchases today are financed using the sorts of conventional loans whose particulars have not evolved much, if at all, for decades. Many would-be buyers, however, do not have the credentials needed to qualify for such financing and have to look elsewhere for help.
More and more often, that means opting for arrangements that include an indirect lender behind the scenes. This increasingly common type of lending involves a number of distinct activities, including:
- Contracting. Dealers who see that their customers could benefit from more access to financing will often approach indirect lenders to set up contractual relationships. That will entitle a qualified dealer to approve loan applications on the spot for customers who meet the specified requirements.
- Purchasing Soon after a qualifying loan has been issued by a partner, an indirect lender will buy it, typically along with a number of others. This frees dealers from needing to keep such liabilities on their books for long at all.
- Securitizing. Indirect lenders themselves do not normally hold on to the loans they purchased for extended periods of time. Instead, they package them up into securities which are sold on to investors, freeing up more capital to be lent out to car buyers.
- Servicing. Even after having sold off a loan, a secondary lender will often keep servicing it. Continuity of service makes problems like defaults less likely, in many cases.
An Approach That Has Enabled Millions of Car Purchases
This relatively novel style of automotive financing has allowed many vehicle purchases in recent years. Although there are alternatives, loans that rely on the contributions of indirect lenders have benefitted many car buyers and will do so for many more.