Several years ago, after the U.S. housing market collapsed, Angie Vines found herself in an increasingly desperate situation. She and her husband, Michael, were homeowners themselves, and Michael was in the flooring industry. When he was laid off by the company he had worked for the past 10 years, the Vines were pushed to the brink.
“We had to file for bankruptcy to hold onto the house,” Angie says. She had reason to be hopeful for a fresh start. She was on track for a prosperous career in finance and Michael was able to find flooring jobs on his own. But there was one last obstacle: Michael needed a dependable truck, and it seemed unlikely they could qualify for an auto loan.
That’s when Angie learned about Prestige Financial, a subprime finance company based in Salt Lake City. Prestige was able to finance the Vines’ purchase of a late-model Chevrolet pickup. The initial interest rate was high — 17.9 percent — but Angie says the price was right and the payments were manageable. By setting up automatic payments and making them on time for six months, they were able to begin reducing the rate.
After going through bankruptcy, “we didn’t know what to expect,” she says. “To our surprise, we were able to get this done.”
For sports broadcaster Ben Catley, bankruptcy was the end result of a softball injury. “I was trying to run down a play at first,” he says about the Achilles tendon injury he sustained. “I got up, and I could move. But it didn’t heal right.”
The injury, which would eventually require a costly surgery and rehabilitation, occurred just as Catley was getting started in a challenging field. Employment was seasonal, and he often had to drive 100 miles round trip to work a game. With his medical bills stacking up, bankruptcy was the only way out. He filed in June 2003.
“I had managed to somehow get a new car before that,” he says. “I couldn’t make the payments. I was sweating. I had no idea what I was going to do.”
Catley looked for answers online. He learned that financing was available for car buyers with recent bankruptcies. He found Prestige Financial and wound up in a 2002 Saturn L200 at a 21 percent interest rate on a six-year deal — terms he chuckles at now. Like the Vines, he was able to reduce his rate over the life of the loan. His career took off and the Saturn held up over tens of thousands of miles. “One of my proudest moments was when I got the title in my hands,” he says.
The Vines and Catley both found a new vehicle when they needed it most, and both used the loans to rebuild their credit. Their stories aren’t unique, and Prestige isn’t the only finance company that specializes in bankruptcy customers. Several established national and regional lenders, including Consumer Portfolio Services (CPS), First Investors, Friendly Finance Corp. and Tidewater Finance Co. also offer programs for recent bankruptcies. So what makes “BK” customers so creditworthy?
Watching the Market
Bryan Reese, special finance director at Sill-TerHar Motors in Broomfield, Colo., says customers who recently filed for bankruptcy are a safer bet than those with other types of credit issues. “They don’t owe anybody money, and they can’t just file for bankruptcy again,” he says. “They pay their bills but something happened. It could be a divorce, loss of job or a medical issue.”
Sill-TerHar moves upward of 40 special finance units each month, most of which are BKs. Reese partnered with Chandler, Ariz.-based OnlineBKManager.com to funnel leads to the store. That company’s president, Robert Davies, says those deals get funded for one simple reason: Finance companies know they’ll bolster their loan portfolios, and that increases their access to capital.
That wasn’t always the case, however, particularly after the 18-month credit freeze that followed the burst of the housing bubble. Subprime mortgages, not auto loans, were to blame, but dealers and car buyers suffered. By the time capital began to flow back into the market, Davies says investors had come to their senses.
“In 2009, Prestige Financial became the first to do a securitization,” he notes. “It was small, about a $150 million portfolio. But it showed the world that subprime automotive works.”
Sources and options for financing have multiplied ever since, and Davies says there is no shortage of customers looking for dealers who will work with them. His sources report a steady flow of 25,000 to 28,000 new bankruptcy filings and discharges each week this year.
Skip Cowan has been financing bankruptcy customers at Rock Honda in Fontana, Calif., since 1994. Today, that’s all he does, and his four-man department closes 35 to 45 deals every month. His title is “VIP services director.”
“That’s how we look at those customers,” he says. “We really think they are VIPs.” Cowan makes a personal investment in each customer. He believes that people who are dealing with personal issues shouldn’t be subjected to the standard sales process. Much of his time with customers is spent explaining how the deal they get today will lead to more favorable terms in the future.
“I believe I have the highest repeat and referral rate in the store,” Cowan says. “My customers move on to other departments once their credit is better.”
Building a Reputation
PJ Taylor, F&I director at Buckeye Ford in London, Ohio, says that 25 percent of his business is repeat customers or referrals. He stands behind Buckeye’s special finance expertise and never hesitates to ask car buyers to refer their family or friends. “They might not be a BK, but there’s a good chance they’re subprime,” he says.
Taylor uses a combination of radio, TV and direct mail to advertise his services. He also relies on referrals from local bankruptcy attorneys, but he cautions that not all attorneys are aware of the options available to their clients.
“They have the option of keeping their car in the bankruptcy,” Taylor says. “So they include a $13,000 [obligation] that’s only worth $8,000. That’s $5,000 in negative equity, and that puts them in a bad position.” He would advise the same customer to let their old vehicle go and start over with something they know will last.
“If the income is there, we can put them in a new Ford,” Taylor adds.
