End to end lending process

REVITALIZING YOUR END-TO-END LOAN SERVICE MANAGEMENT APPROACH TO AUTO LENDING

The defi Team defi INSIGHT, Managed Servicing, Servicing Systems, Simplifying Processes

End-to-end loan service management (approach)

When the seventh annual Powersports Finance Summit takes place in October 2022, it will feature presentations, panels, and discussions regarding the trends and opportunities powersports financing presents to lenders. The two-day event will include a look into the digital initiatives that are changing auto lenders’ approach to end-to-end loan service management. These disruptions to the industry aren’t just related to powersport vehicles—they’re making waves throughout the auto finance industry and helping auto lenders retain a competitive edge.  

Powersport lending has been growing exponentially in recent years, and this summit shows how financing is opening up within this lucrative market sector. As auto lenders are coming to embrace electric vehicle (EV) finance, the recreational sport vehicle market is another key area in which lenders can provide customers with end-to-end loan service. Management approaches should change as a result, facilitating greater lending opportunities for consumers wanting to purchase this class of vehicle. Whether it’s financing for all-terrain vehicles (ATVs), motorcycles, personal watercraft (PWC), snowmobiles, or utility terrain vehicles (UTVs), the powersport lending market shouldn’t be overlooked. 

Powersport Lending: A New Approach to Vehicle Loans

Financing these types of vehicles is done in much the same way as an ordinary car. However, lending for these vehicles requires lenders to be more conservative in their debt-to-income ratios and more stringently evaluate an applicant’s credit. While all these vehicles are used for recreation, they also have utilitarian uses. 

Basic categories for powersport vehicles include: 

  • Motorcycles: As most motorcycles are also street-legal, these are the most popular type, as they don’t require a trailer and take up much less space than other powersport vehicles like ATVs, jet skis, and snowmobiles. 
  • Snowmobiles: Able to navigate in deep snow, snowmobiles can be used for trail riding, touring, or even for practical purposes in areas where deep snow hampers wheeled vehicles. However, their downsides include the fact that they can only be can’t be used for much of the year as they require snow, and they’re also comparatively much more expensive.
  • PWCs: Also referred to as jet skis, these are typically either sit-down or stand-up models. The former are considerably more popular, as they don’t require the skills needed for stand-up models and can carry as many as three passengers.  
  • ATVs: These are also known as 4-wheelers, light utility vehicles (LUVs), or quad bikes, and they’re generally more affordable than jet skis or snowmobiles. Their stability makes them useful for farm and other work as well as recreation, with those used for work equipped with a hitch, storage rack, and winch.
  • UTVs: Bigger than an ATV, UTVs cost more, as they have a larger chassis, more powerful engine, and roll cages. They’re more like a regular automobile, with bucket seats, steering wheels, and pedals. 

As with regular automobiles, loans for powersport vehicles can be secured against the vehicle. 

ATV End-To-End Loan Service Management Considerations

The North American ATV market was the most prominent in 2021, accounting for over 56 percent of $1.25 billion in global revenue and expected to grow at a 5.2 percent compound annual growth rate (CAGR) through to 2030. Renowned for their capabilities to traverse rough terrain and maneuver off-road, they’re used in agricultural, forestry, and military applications as well as for sport.  

Just like with a regular automobile, consumers can go to banks, credit unions, dealers, captive finance lenders, or other consumer lenders for end-to-end loan service. Management approaches towards an ATV loan will also be similar, though the amount of a loan for a new ATV will be significantly lower than for a new vehicle. Typically, ATVs cost between $5000-$15,000, though models meant for children can cost as little as $2000. 

Motorcycle End-To-End Loan Service Management Policy

Motorcycle sales spiked in 2020 as people responded to the COVID pandemic by purchasing more street-legal motorcycles, off-road motorbikes, and scooters. 2021 was an off year for sales in comparison, after a record $5.319 billion for street-legal motorcycles the year before, with $734 million in sales for off-road bikes. While the recovery in the street-legal market segment is only predicted to occur by 2026, for off-road motorbikes, it’s expected to surpass 2020 and reach $771 million by 2023.  

Often classified with regular motorcycles, trikes are essentially three-wheeled motorcycles used mainly for leisure cruising. They’re rising in popularity among new riders and motorcyclists with knee problems, as they’re easier to ride and more stable than two-wheeled motorcycles. This market alone is expected to grow by just over $1 billion between 2021-2025. 

As per ordinary automobiles, electric motorcycle sales are growing more than those with internal combustion engines. The North American market for electric motorcycles and scooters looks to increase by over 25 percent CAGR to $590.4 million in 2025. States like California are also offering a 10 percent tax credit for electric motorcycle purchases, along with a $900 rebate. More US states may seek to emulate California’s model, giving electric motorcycle sales an even more significant boost.  

Loans for new motorcycles can vary significantly, with bikes for beginning riders generally costing between $5000-$10,000. However, experienced motorcycle aficionados can spend as much as $35,000 on a bike, nearly the average cost of a new car. 

PWC End-To-End Loan Service Management Factors

PWCs are used primarily for recreation and sport. Because of this, they’re trickier to finance than other powersport vehicles. Some banks and credit unions even offer programs to help consumers save for a PWC down payment, as many buyers won’t be eligible for 100 percent financing. Their prices vary widely, from $5000 at the low end to around $20,000 for more luxurious models. 

General types of PWC include:

  • Rec-lite PWCs are small, lightweight crafts meant mainly for rivers and smaller lakes and are the most affordable.
  • Recreational PWCs are more robust and larger, offering space for up to three people, and are commonly used by companies that rent them out. 
  • Performance PWCs offer greater power and speed and allow more aggressive handling, so they are much more expensive.
  • Luxury PWCs typically provide more stability, featuring larger fuel tanks, more comfortable seating, and other amenities. As such, they’re the highest priced and quickest to depreciate in value.
  • Tow sport PWCs are specially designed for water sports, specifically to tow people on water skis, wakeboards, wakeskates, or tubes.    
  • Sport-fishing PWCs feature the amenities of a small fishing boat, such as rod holders, a fish finder, and even a cooler. 

Besides recreation, PWCs are also sometimes used for rescue operations or by law enforcement in certain coastal areas.

Snowmobile End-To-End Loan Service Management Approach

Besides recreation and sport, snowmobiles are used for winter (or high altitude) rescue missions and patrolling borders. Unlike other powersport vehicles, snowmobile sales declined significantly over the 2021-2022 season, falling by over 9 percent to just over 51,000 units. Snowmobile prices average about $12.000 and, when financed, typically are bought with personal consumer loans. The short season for usage is another significant drawback for lenders. 

The demographics of those who buy snowmobiles in the US shows that 88 percent are male, 30 percent are over 60 years old, and 82 percent of first-time buyers purchase a used snowmobile, though most plan on buying a new one in the future. With an average age of 46, snowmobile users are at an age when they’re likely more financially stable, boding well for lenders wishing to provide financing

UTV End-To-End Loan Service Management Methodology

UTVs are the most like regular automobiles and are considered the safest of powersports vehicles due to their safety features. They have side-by-side seating, pedals for speed control, seatbelts, roll cages, plenty of storage space, and other features commonly found in street-legal vehicles. UTVs are more commonly used for work than leisure, like on farms for hauling feed and other supplies or for use in forestry or construction. They’re also used for outdoor sporting events to transport equipment, water jugs, or even injured athletes.

The US UTV market is projected to reach $11.5 billion in 2027, from $7 billion in 2020, with a CAGR of about 6 percent over this period. While mid-powered UTVs (between 400-800cc) captured 35 percent of the market, there seems to be significant demand for electric UTVs as well. The market in North America in 2019 for electric-powered UTVs generated nearly $360 million, over five times that of the next largest market in Europe.  

Getting Started

defi SOLUTIONS offers a total solution for a lender’s complete loan or lease lifecycle. Partnering with captives, banks, credit unions, and finance companies, defi’s market-leading solution helps lenders exceed borrower expectations. From digital engagement through the end-to-end lending process, defi sets new standards for flexibility, configurability, and scalability in originations and servicing (by your experts or ours). defi SOLUTIONS has the backing of Warburg Pincus, Bain Capital Ventures, and Fiserv. For more information, please visit www.defisolutions.com.

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