BMO Shuts Down Auto Loan Business
- Thread starter Darts
- Start date
I spent a bit of time in that side of the industry as well. Not entirely sure what they mean by indirect loans, but I have an idea.
related.
When people think of their credit resumes, they always think “my credit score”…anyone’s score is just a small snap shot, and algorithm that each credit rating company calculates. The two most popular all the big banks and numerous auto loan providers, as well as landlords use are Equifax, and Trans union. Each has its own algorithms to arrive at the “score”.
Behind that snap shot, is all the stuff lenders look at. As well as the score. Even when you pay Equifax for your credit history and score, your not seeing everything lenders pay to see.
Credit “scores”.
There’s Prime (Scores above 750) and subprime. Subprime is or was about 55% of the Canadian market space during Covid. In fact, there are now many dealers, who specialize only in the Subprime market space it’s that big. I imagine given stuff, a lot of stuff. It’s worse these days.
Shutting down one arm/division.
See topics about corporate profits, and how merciless companies are. What matters are profits and shareholders. Doesn’t matter how profitable “BMO” is. If a department isn’t making the profit it’s supposed to.
cya
And as far as loan loss provisions/defaults go.
Sunny days last forever
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Indirect loans in this context means those car loans that are originated by the Finance Department at the Dealership and then placed with BMO; and then BMO pays the Dealership a "residual" for placing the loan. The customer doesn't go into the Bank directly to apply for the car loan.
I worked for BMO in the past; BMO would refer to these as Conditional Sales Contracts (or CSCs).
It should be noted that BMO will continue to offer Commercial Financing to Dealers who need Credit to obtain Inventory.
BMO has a reputation as being a Conservative lender; the Bank cannot justify being involved in that line of business anymore.
Did you know CIBC will do Indirect Auto Financing for cars up to 10 years old?
Re last yes.
that and more.However the older the vehicle is, the higher the rates and shorter the term ( higher monthly payment), all else equal ( credit profile). Lenders don’t like possibly having unsellable assets when people default .
Im going off memory. So won’t recall all when I used to read them. I’d have to see mine to recall what is/what isn’t. Know too, that different things/sections carry more or less weight. To the lender and to the score ( proprietary algorithms)
late payments.
How many 30, 60, 90 day for each loan, or cell phone for 7 years.
how many hard hits for credit. How often a person applies for credit. Go to a dealer for a car and they might submit to 3 or 5. Go to the next dealer down the road hoping for a better rate and they might submit you to 3 or 5 lender. Lenders really don’t like to see this. It implies your always shopping for better rates, or you apply for credit a lot.
I think gross credit. The total of available credit vs how much debt. When over 50% that’s usually a deny.
they do like seeing credit card balances ideally under 50%. When they see 0 balance. There’s no credit history…how do they know you’ve ever used it, and make your payments on time??
I think a few others
it's just a fraction of it...you may have a good credit score but if you have 5 credit cards, a mortgage and already have a car loan that all becomes a factor + income....you become a red flag at one point.
My theory is, used car dealerships with in house financing...they usually partner with banks and approve customers with bad or no credit...we see those ads all the time don't we? They usually do all the dirty work...and when the borrower defaults, they would do repossessions...it's a shitshow in hindsite.
Speaking from personal experience, if you have a high enough score, lenders will trip over themselves trying to get you to borrow from them.
I have $150,000 in Unsecured Credit between 3 different Banks; I didn't even have to apply for most of it.
I just received Pre-Approval Offers for Credit Cards or Lines of Credit; and then over time the Banks would increase the Credit Limits.
It's actually pretty funny considering the Banks are basing these Pre-Approval offers on a Credit Score; the Credit Score doesn't tell them anything about my Income or my Net Worth. It only tells them I have a history of paying my Bills on time, and that is enough for them.
This...If you keep your credit low and active...the banks would increase it every quarter...I have a credit limit of 30k on 2 banks and 1 i just applied through online banking and they offered 20k initial limit...LoL...I hate owing money but i hate paying interest more so I keep everything in check....
As you said. If you have a high enough score. 55% of people are Subprime and that was during Covid…You also likely have a credit history of many years ( a thick profile)…young people, people that use cash all the time will have thin profiles ( not a lot of data) so even if the score is reasonable that’s not saying a lot. And that score is a result of many things.
Credit card tip. never pay it off “right away”When statements are generated by your bank. A balance of 0 counts for 0. For all lenders know you’ve never used it once. Pay stuff off, after the statement date but before due date….or keep the balance under 30%
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actually it works paying it off...I use MC for my gas and I average $350 to $400 collect points on it and when the statement comes out, I pay off whatever's the full balance on it... i have the triangle card for 4 years now and haven't paid a single cent of interest...my balance can go as high as $800 due and pay it off... it's mostly gas (summer gas doubles when I take my boat out)... triangle limit now is $30k despite me paying it all off every due...
as you said Richaceg. After the statement comes out, so that balance is there. If unable to pay it all off (say $3,000 vacation), try to get balance down to 30% but under 50% as much as possible.
lenders don’t see your transactions. All they see is the current balance when your profile is pulled from Equifax… and # of late payments ( 30, 60,90 days). And how that balance ( in total with all else) measures against total available credit. So if the balance is zero….for the month, at the time applying for credit. That card could be 10 years old and never used once.
Then they approve or not. And they send the dealers
A rate they are willing to lend at ( could be over 30% if there’s a bankruptcy, previous defaults, liens and or collections)
And the maximum monthly payment they will accept ( not how much $$). The monthly payment is determined by.
Term
Rate
Amount.
lenders don’t see your transactions. All they see is the current balance when your profile is pulled from Equifax… and # of late payments ( 30, 60,90 days). And how that balance ( in total with all else) measures against total available credit. So if the balance is zero….for the month, at the time applying for credit. That card could be 10 years old and never used once.
Then they approve or not. And they send the dealers
A rate they are willing to lend at ( could be over 30% if there’s a bankruptcy, previous defaults, liens and or collections)
And the maximum monthly payment they will accept ( not how much $$). The monthly payment is determined by.
Term
Rate
Amount.
Car buyers say dealerships duped them over TD's costly loans | CBC News
“I feel very misled and deceived,” said Ashley Franson, of Pitt Meadows, B.C., who said TD has since refused to give her a lower rate.
Go Public first reported on the high interest auto loans when a B.C. couple came forward to say they felt misled into a 25 per cent interest loan from TD.
The customers are being charged between 15 and 30 per cent interest, over terms as long as eight years, on their subprime car loans.
“I questioned the high interest rate and that's when I was told, ‘Don't worry about that. You're going to be refinanced in a year and your interest will be lower.'”
Franson has two children and works full-time as an administrative assistant. Several years ago, she said she was saddled with debts a former spouse racked up in her name, which damaged her credit rating.
In 2011, Coquitlam Chrysler sold her a 2009 Kia Hatchback for a sale price of $11,085.
The dealership arranged financing from TD at 22.92 per cent annual interest. Including all fees, charges and interest, the total cost to Franson was listed at $27,182 — more than twice the selling price of the car.
“It makes me sick to my stomach,” said Franson, who estimates her car is now worth $5,000. “It keeps me up at night because I'm paying more in interest than what the loan amount is.”
That happens to me with Credit Karma all the time. I refuse credit limit increases but put everything on my credit card with an auto pay set up to pay the entire amount owing on the due date. Sometimes this causes my credit utilization to be higher than 50% and that puts a ding in my score. That said, the lowest my score ever dips to is 790. But I've been told that if I were to get a car loan my score would be closer to 850 because I don't have enough credit products. Counter intuitive, IMO, but I didn't create the system.
Income test.
What’s your gross income, and sources. Mtg/rent and if that’s split ( spouse )…if everything is a green light, then they want proof of income/proof of employment.
Scores
The thinner your history, the more subject it is to changes. Basically is your credit history 3 years, 10 years or 20. Also have much credit do you have.
Lenders and scores like all sources. They want to see that you have and use credit. It helps them peg you.
Cell phones
Closed loans ( Mortgage)
Open loans (credit cards, lines of credit )
So say you’re 25 and all you have is a couple cards….that’s not much history that shows lenders how “reliable” you are.
Credit services
Equifax, Transunion. Have their own algorithms and they are very secretive. No one really knows how much this or that affects upward/downward movements. Sort of best guesses.
Free ones. Are best guess and can differ quite a bit from the two all lenders use. Equifax usually offers a free bare bones score.
Lenders also see, though I forget the name. A calculated trend. Based on recent habits, is your score predicted to go up or down in the next 6 months.
What’s your gross income, and sources. Mtg/rent and if that’s split ( spouse )…if everything is a green light, then they want proof of income/proof of employment.
Scores
The thinner your history, the more subject it is to changes. Basically is your credit history 3 years, 10 years or 20. Also have much credit do you have.
Lenders and scores like all sources. They want to see that you have and use credit. It helps them peg you.
Cell phones
Closed loans ( Mortgage)
Open loans (credit cards, lines of credit )
So say you’re 25 and all you have is a couple cards….that’s not much history that shows lenders how “reliable” you are.
Credit services
Equifax, Transunion. Have their own algorithms and they are very secretive. No one really knows how much this or that affects upward/downward movements. Sort of best guesses.
Free ones. Are best guess and can differ quite a bit from the two all lenders use. Equifax usually offers a free bare bones score.
Lenders also see, though I forget the name. A calculated trend. Based on recent habits, is your score predicted to go up or down in the next 6 months.
Get a Free Credit Report | Equifax®
A credit report can help when buying a house or car. Learn more about when, why and how you should get a free credit report.
www.equifax.com
That’s actually true.
what lenders want to see basically, is how reliable/responsible you are. It’s their $$ at risk. The more types of credit, the more history. The more years you’ve had A B and C ( the three types) the more data.
If I recall correctly. 5 credit cards is equal to one car loan. With respect to how much a year/two payments will affect your score positively or negatively. This is why that couple in BC up above got burned.
The best way for people with poor credit or thin credit, to improve their scores (and thus rates/approvals) is a car loan. But you still need to be good, nor is it gauranteed a lender will refinance. Could sell the vehicle ( trade in) and get a better rate ( with an improved profile) but then it’s likely negative equity will crush said person.
I found this. Not sure it’s exhaustive but it’s close.
Credit reports and scores - Canada.ca
Improving your credit score, correcting errors and ordering your credit report and more.
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I feel like banks focus a lot on activity on the card and the frequency of payments...if you always use your card, it probably feeds an algorithm that you're borrowing a lot, and then once it paid...it feeds that you're a good payer...it has served me well paying off anything owed...
The ratings companies don’t see your transactions. Neither what you purchase, how often you purchase. Whether you make 1 payment a month or 20…All they see is the balance and how many times you’ve missed due dates… Period. As far as anyone in the business can tell, as long as the balance is under 30% it won’t impact the score. Assuming a typical consumer that doesn’t have 6 cards.
in terms of “weight” and what will impact scores, positively or negatively car loans are one of the best. Because the monthly is fixed ( though an open loan) and people lose their cars if they default. In other words, regular monthly payments.
What affects your credit score in Canada? And what doesn’t.
www.fidelity.ca
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Every lender, every bank, landlords these days. Pay Equifax or Transunion when they pull your report. They see the full report. Go to a car dealer, they want to sell you a car. They will pull your credit from Equifax, and based on what they see.
Send you to one ( if prime) or 3-5 lenders they have agreements with if subprime. They in turn will pull your credit, each counts as a hard hit ( see above)…approve or deny then let the dealer know. and they ( the dealer) do that so they can pick the one lender with the best rate and maximum monthly payment amount for you.
And at the end of the day, neither Equifax or Transunion will tell anyone exactly how they calculate the score. It’s their trade business. Everyone else just has best educated “guesses”.
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I should probably add, I know this stuff because there was a time I reviewed credit applications and full Equifax reports.
It is a sign of the times. BMO can not give loans to people on items that they can just drive away, unlike a property. The is why you see a lot of repo man videos from the US.
