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