The lending industry has been a place of impressive innovation and growth over the last few decades. Formerly staid institutions have become a lot more agile in response to a proliferation of much younger, hungrier competitors.
As a result, the number of available options and products of all types has multiplied across the industry. Companies like Consumer Portfolio Services are busy serving a variety of parties in interesting and frequently novel ways.
Buying and Packaging Auto Loans for the Benefit of Many
Even as recently as twenty years ago, securing an auto loan required having a fairly pristine credit record. Even though these types of loans are almost always well collateralized, default rates and occasionally misaligned incentives made many lenders leery of extending credit to any but the most qualified of consumers.
Since then, another, newer type of lender has developed an effective way to serve those who were formerly left out. Under this increasingly common arrangement, auto dealers enter into partnerships with lenders who agree to buy loans that are assessed and issued on site. So long as each loan extended and offered meets the lender’s qualifications, dealers can count on being made whole after every transaction.
The lender will then assemble many such loans into packages that are divided up appropriately and assigned to particular investors. With each security possessing its own risk profile and potential for returns, investors have many options to choose from. Buying a security whose value rises or falls relative to the performance of the loans that back it means being able to stake out a position on an economically important type of activity that would otherwise be difficult to track.
An Impressive Example of Innovation in the Lending Industry
As a result, car buyers, dealers, and investors all benefit from this style of lending. Since each becomes privy to opportunities that would not otherwise exist, it could be said that this relatively new type of lending has been one of the most impactful of all in recent years. With a number of companies that focus on this type of activity now performing very well, it has become clear that this interesting and frequently useful take on automotive lending is here to stay.