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.