Auto-based lender enters sub-prime market

Ride Today Acceptance filling void in powersports space

In 2012, Encompass Consulting employees began looking into sub-prime and non-prime lending options for powersports customers, and they came up nearly empty-handed.

Encompass has been helping automotive dealers start their own captive finance companies, offering lines of credit since 2004. Some of its automotive customers were looking for sub-prime and non-prime powersports financing, but it was hard to come by.

With this discovery, Encompass started financing motorcycles to sub- and non-prime customers in the New England market, and found success within the first three months of launching the program. Research was then done to assess the need for these services nationwide. Not surprisingly, the need was apparent.

“When we dived into motorcycles very deeply, we couldn’t find challenged credit lenders for the sub-prime industry,” Richard Snyder, director of Captive Finance for Rider Today Acceptance, told Powersports Business.

When new owners took over Encompass in January 2015, they were interested in further exploring sub-prime and non-prime lending in the powersports space, and Ride Today Acceptance was created.

“They saw a tremendous demand because there really wasn’t a whole lot in the market. And about half of the country, believe it or not, would fall into that non-prime or sub-prime definition based on credit,” said Jason Sheeley, national sales manager for Ride Today Acceptance. “Compared to the automotive industry, where there are maybe 1,000 lenders, there were probably not even a half-dozen nationwide lenders [in the sub-prime space in powersports]. Because of our experience in doing it for our captive dealers on the administrative side, we just saw a large open market there that really hadn’t been tapped. It’s a very underserved market.”

About half of all powersports customers fall into the non- or sub-prime category, Sheeley said, so dealers who don’t have that option for retail financing are losing about 50 percent of their potential buyers.

“To get a powersports vehicle, it’s a higher risk than an automobile, so when lenders’ guidelines are looking at powersports, they’re much more stringent when compared to an auto. So yes, it’s always going to fall within that 40-50 percent of the industry coming into powersports will be in the sub-prime market,” Snyder explained.

Ride Today Acceptance offers loans on model year 2001 and newer new and pre-owned on-road, off-road, metric and V-twin motorcycles, as well as ATVs and side-by-sides. Ride Today works with franchise and independent dealerships, from those like five-store group American Heritage Motorcycles to smaller shops.

Ride Today currently serves 28 states, with the goal to be available in 40 states by the end of 2016. More than 200 dealers are now working with Ride Today.

Sheeley said Ride Today Acceptance offers dealers the chance to earn sales from customers who are turned down by traditional lenders.

“The number that I’ve been told by bigger dealer groups is that all-in it costs around $400 to step foot on the property — if you include the overhead, advertising, etc., to get one person into the dealership,” he said. “And I talk to dealers that have a 30-40 percent turndown rate with not having non- and sub-prime lenders. That turns into an awful lot of money spent on advertising, salaries and overhead for people to come and say, ‘Yes, I want to do business with you,’ and you have to give them their deposit back a few days later and say, ‘Sorry, we couldn’t help you.’ And they walk out the door, simply because the financing options weren’t available to them.”

Dealers who have signed on with Ride Today Acceptance average a 10-15 percent increase in sales, while some are up 20 percent or more. One newer, small, pre-owned dealership that is working with Ride Today is selling so many more motorcycles now that it can’t keep enough units on the floor to meet demand.

“Basically what we’re doing is we’re just doing incremental sales that they’re losing,” Sheeley said.

When Ride Today Acceptance considers an applicant’s loan, the applicant’s type of job, job longevity and the job stability in the geographic area are all considered.

“We build the picture. They have to be able to overcome the objections on the credit report. A lot of times we will do an interview with the customer through the dealer or directly, and we build the picture to overcome any objections. Then the final step is to look at the credit,” Snyder said.

Credit dings like motorcycle repos or similar issues might cause a problem, but a 30-second to two-minute interview between Ride Today Acceptance and the customer can sometimes clear up certain issues. And if it appears the loan will be denied, Ride Today looks at other options that might help the customer take a bike home.

“If they need a few more months on a loan, or if they need a little help with the down payment — maybe the customer doesn’t have what we wanted initially — we can go to underwriting, and say, ‘Listen, we’re $300 away from being able to do a deal here, is there any extra room, keeping in mind we are very close?’ Sometimes they have to slot collateral or get a co-signer or something like that, but it’s not just approve or decline. There’s a lot of middle ground there that we can work with the dealers on,” Sheeley said.

To assure the payments are made and customers can rebuild their credit, Ride Today Acceptance pulls payment through borrows’ debit cards the day after they’re paid, whether that’s weekly, bi-weekly, or monthly. Ride Today Acceptance also reports payments through the credit bureaus to help improve its customers’ credit scores.

“We’re giving them the opportunity to drive the want, instead of the necessity of a car. They want that Can-Am to go out on the weekends; it’s $75-$100 per week. Everybody else has said no. We show them how they can do it as well as rebuild their credit, but not do it in a way that they’re paying $450-$500 a month and putting themselves in a bad position,” Snyder explained.

Loan terms run anywhere from 12 to 60 months, though most customers fall into the range of 24-42 months.

“They will have an equity position in the loan in a relatively short term. If you have a three-year loan, you have something you can trade in a year, year-and-a-half down the road,” Sheeley said.

Because many customers who are approved by Ride Today Acceptance had been declined by traditional lenders, the Ride Today customers are usually loyal to the dealership that approves them.

“The feedback that I’m getting from our established dealers is these are loyal customers because the odds are they’ve gone into two, three, four different shops before they got to yours, and they got turned down everywhere. Where are they going to come back to when they need tires on their bike, or they need an oil change, or their friend asks them where they go their bike? It’s all going to come right back to that same dealer,” Sheeley said. “Somebody with a big credit score? They can shop anywhere. The people with challenges? They’re happy to get approved, and they’re loyal because you got them on a bike, instead of them taking their truck to Bike Week again.”

Ride Today Acceptance is built to be the backup plan for dealerships that aren’t getting approvals from their primary retail lenders. That’s why the company never expects to be the No. 1 lender at any dealership, and Ride Today is even OK with dealers who only do one or two dealers per month with the company. There’s no cost for dealers to sign up and no monthly maintenance fee.