Prestige Financial Lowers Payment to Income Ratio

For several years now, the two largest lenders for auto loans with open bankruptcies were Zions Bank and Prestige Financial Services. A couple of weeks ago, Zions said they were pulling out of the auto loan business which left Prestige as the only major player in the market.

I predicted that within a couple of weeks of Zions withdrawal, Prestige would soon be changing their underwriting process dramatically. On Friday, I got a phone call from a rep at Prestige that said they were “unofficially” lowering their maximum Payment-to-Income ratio to 11% for people that make less than $4000 per month (which, in my experience, means about 80% of the people going through bankruptcy).

This change means Prestige now can “cherry pick” all of the loans that have very low payment to income ratios and still fund a large number of deals.

Bad for Car Buyers, Bad for Dealers

To respond to the current economy, and gas prices, Prestige had already all but eliminated lending money on Trucks and SUVs. Now many customers who can afford a reasonable car payment are going to be stuck walking, taking the bus, or bumming rides from friends and family. I have been in the auto business long enough to know that most customers do not believe that a bank will give them a loan on a Ford Focus, but not on a Chevy Tahoe. Or that to buy a Dodge Dakota, they have to come up with $4000 down, but a Ford Fusion can be purchased with $0 Down Payment.

What 11% PTI Means:

For someone that makes $2000 per month, the maximum auto loan payment Prestige will allow (AS OF TODAY) the customer is $220. Even if the person has no other bills, and no rent. It is great to have a payment under $220, I wish I had one. The problem is that Prestige also has a maximum age of the vehicle, and maximum miles on the vehicle. Cheap, older vehicles do not qualify. Effectively, unless there is a large down payment, Prestige has raised their minimum income to about $2500. At $2500/month income the customer would qualify for a $275 payment and with Prestige vehicle guidelines it is often possible to find a vehicle that will fit under that payment. Not always, but often.

I do not blame Prestige. I have been using them to help my customers get loans for about six years now. I just do not like the current economic environment. This change just makes my life harder, and I wanted to rant about it a little.

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2 thoughts on “Prestige Financial Lowers Payment to Income Ratio

  1. It is true that lenders have tightened up, especially for mortgages. People with low credit scores, however, can still qualify for an auto loan. Auto loan lenders, unlike mortgage lenders have nationally recognized valuation guides such as NADA, Kelley Blue Book, and Black Book. These guides assure that lender will not over advance the consumer. Similar guides are not available in the mortgage industry, thus, appraisers where over valuing home appraisals to meet the requested loan amount.

    With an auto loan, buyers can expect lower loan amounts and shorter repayment terms. In other words, you can still borrow money, just less of it.

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  2. You are right, but the bad part is right now smaller vehicles, especially small cars are going through the dealer auctions for way more than the KBB and NADA say that the vehicles should be selling for. The reason is that many people want to get something that is better on gas. To compound the problem, the lenders are currently experiencing the highest truck and SUV repossession rates ever. More trucks at the auctions, less truck buyers means lower prices. Less cars, and more car buyers means higher prices. NADA and KBB have not yet caught up. If KBB says I should pay $10,000 for a Focus at the auction, but it cost me $12,000 to buy it, what should I do? 1. Don’t buy it and then I do not have a vehicle on my lot that a lot of people want right now. 2. Buy it and pass the higher prices on to the customers. Of course, the customers still think they should only have to pay KBB retail and not the extra $2000. Then there is the issue of the bank only wanting to lend $12000 on the car, and so many customers cannot buy it without a large down payment…”it is a vicious cycle” as one of my favorite characters from an Austin Powers movie once said.

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