F&I Training Tips: Subprime Auto Financing 101 - YouTube

Welcome back to F&I Training. When a lender declines a subprime customer, changing the

vehicle may make a world of difference. What separates the best subprime F&I

managers from the average F&I managers, is their ability to adjust on the fly.

Now one way to adjust on the fly and save the deal is by implementing an LTV

sheet. LTV stands for loan to value - the loan to value or LTV is the ratio of the

amount borrowed by the customer to the market value of the vehicle they are

buying. In order to calculate the LTV of a vehicle you need two numbers, first the

ACV of the vehicle. ACV stands for actual cash value or the market value

Second you also need to know the loan amount that the customer is applying for

once you have those two numbers you simply divide the loan amount over the

ACV then multiply the result by 100 to give you the LTV percentage. Let's try an

example. If a customer is borrowing $20,000 in order to purchase a vehicle

that is also worth $20,000 in actual cash value, and the LTV will be 100%

because $20,000 divided by $20,000 equals one then multiplied by 100 equals

100 percent but what if they were borrowing $25,000 from the lender to

purchase a car worth $20,000, in that case their LTV would be 125 percent

$25,000 divided by $20,000 equals one point two five - then multiplied by 100

equals 125 percent higher LTV means More risk for the lender and lower LTV means

less risk of these two scenarios which do you think a bank would feel better

about? Option A - where the customer is borrowing the same amount that the car

is worth or option B where the customer is borrowing more

than the car is worth yep you got it option a lenders are more willing to

lend money to subprime customers on lower LTV deals and that way if the

customer stops paying for the loan the lenders loss will be minimal after they

repossess the vehicle and sell it at auction - okay so how does this tie in

with subprime customers by using LTV you can find cars that banks feel better

about because there is less risk for them an LTV sheet is a document that

lists your dealerships highest ACV vehicles and then shows them in relation

to what the dealership is selling the vehicle for in other words an LTV sheet

is a cheat sheet that says the bank likes these cars more there's less risk

when a lender declines or counters your subprime customers for a particular

vehicle that doesn't mean that they won't finance them for any vehicle the

lender may simply want less risk that's where your LTV sheet comes into play

take a quick look at your LTV sheet and find a vehicle that has a higher ACV

then check with the lender to see if this better LTV vehicle will turn their

decline or counter into an approval how do you build the LTV sheet well popular

dealership software's one example would be the auto do this for you they

typically have a way to sort by highest to lowest a CV value or your sales

manager may already keep such a list that you can use if your dealership does

not have this software and your sales manager does not keep such a list it may

be up to you to book out each car find the value and build your own either way

having a quick way to switch subprime customers into cars that banks feel more

comfortable with is a great way to save deals and help subprime customers