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Ford has recently announced that they will now allow buyers without credit score to obtain auto credit. Apparently there is even a special discount on new cars for people with low credit score. Why do they do this? They seem to be taking on a lot of risk but I don't understand what they seek to gain.

Traditionally buyers with bad credit are not offered loans, or offered high interest loans to compensate for defaults. However, very low or zero APR has been common for auto loans in the US lately, so it seems unlikely that defaults could be covered by the interest.

Indeed it is true that there is a small number of score-less applicants who are not likely to default in spite of lack of credit history, but there are also many people without a score or with a very low score, who are in fact poor borrowers and are less likely to make payments on time. Why then did Ford (and the auto industry in general) suddenly decide to court such buyers? If more sales are desired, surely the same can be accomplished with simply lowering prices?

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The article states their reasons pretty clearly, and indicates that some people won't qualify under the new requirements that would have previously, they're not courting people with bad credit, they're just looking beyond credit score at other factors. They aren't opening floodgates for anyone with a pulse to get a car loan, just shifting things a bit to cast a slightly wider net.

This is not new in the world of secured debt, the FHA has methodology for establishing a non-traditional credit report based on things like rental history, utility payments, auto-insurance payments, a person can't be declined an FHA loan for lack for lack of traditional credit history.

I look beyond credit score as a landlord, a tenant with poor credit but a stellar rental history is more appealing than someone with great credit but a bad rental history. Vehicles and housing are very important to people, so they are likely to prioritize them above credit card payments or hospital bills.

Time will tell, but it seems like a solid move in my view, they can refine their model over time and likely find a solid customer base among those who wouldn't qualify on credit score alone.

  • FHA is an inappropriate analogy because it is a government program, not a for-profit private venture. Also, I see your point with factors besides credit score, as you allude to with your example of a tenant with good track record... But what other lending history would a car buyer have? What "factors" are there that do not get factored into the credit score? – Money Ann Mar 30 '18 at 2:28
  • I think the FHA is a great example, the banks that issue FHA loans are typically for-profit, if it wasn't profitable banks wouldn't participate willingly. Income is not factored into credit score, therefore debt to income ratio is not (probably the most important factor). A potential borrower might not have any lending history (and therefore no credit score), but if they've held a steady job for a good while and have no debt then they are probably worthy of a car loan. – Hart CO Mar 30 '18 at 4:21
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Why then did Ford (and the auto industry in general) suddenly decide to court such buyers?

Clearly when they felt they had a viable solution to the financing and could open up the market of buyers they were previously ignoring.

If more sales are desired, surely the same can be accomplished with simply lowering prices?

Millions of people have bad credit. Apparently Ford thinks adding millions of people to the pool of potential buyers is more effective to boosting sales than discounting product for the pool of existing potential buyers.

  • For many cars sold, price does not matter. What matters is an affordable monthly payment. Lowering the price of a car by 2K makes little difference on most loans. – Pete B. Aug 29 '17 at 14:19
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A repossessed automobile will have lost some value from sale price, but it's not valueless. They market "title loans" to people without good credit on this basis so its a reasonably well understood risk pool.

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