Indirect lenders like Consumer Portfolio Services play increasingly important roles in the automotive industry. When traditional lenders tightened up their standards during the most recent recession, many car buyers found themselves locked out of financing. Lenders who work with car dealers in a special type of relationship have since stepped in to make millions of vehicle purchases possible.
Automotive Lending is a Difficult Business
Loans that are provided to enable the purchases of cars or trucks occupy something of a middle ground with regard to risk in the overall financial environment. Because the vehicles to be purchased are always put up as collateral, lenders can normally count on having at least some recourse if a particular borrower defaults on a loan.
At the same time, a car or truck will rarely be as easy to convert into an appropriate amount of cash as a more durable, substantial asset like a piece of real estate. Although automotive lenders face more predictable risk situations than some other types of financial services firms, their fortunes can vary quite widely depending upon such particulars.
About a decade ago, when equities and bond markets began crashing as a precursor to a broad economic meltdown, many automotive lenders decided that the time had come to safeguard themselves against losses. That left millions of would-be car buyers nationwide without access to the financing they had hoped for.
A More Flexible and Accessible Type of Automotive Financing for Many Buyers
Fortunately, another style of lender was ready to fill in the gaps that resulted. Instead of extending financing directly to borrowers, these lenders work with individual dealers who are responsible for vetting and approving buyers who need financing. By buying up the loans that result, indirect lenders like this allow for a more flexible and precisely tailored type of credit for many car buyers who need it the most.
That has ended up being an especially popular and productive way to finance vehicle purchases nationwide. With some of the most successful lenders of this kind racking up impressive financial results year after year, this style of business has proved valuable for all involved. As a result, many experts expect indirect lending to account for an increasing share of all automotive financing well into the future.