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Riding Shotgun is a Dangerous Job

And it doesn't help build lender relationships either.

You know the drill. A customer with B, C, or D credit comes in and you write the deal at anywhere from 15% to 21%. You're hoping to get the maximum allowable reserve so you hit the "blast fax" button to see which of your lenders will provide you with the best rate and maximum reserve. This practice is known in the industry as "Shot gunning", and it's something most lenders don't appreciate.

Something for nothing

Lenders work hard at trying to build dealer relationships. In many cases, the only reason a dealer considers using them is based on how deep they'll buy. But the terms for these lenders are based on strict guidelines for the vehicle, the customer, and the deal structure. So, if they are sent an application that doesn't fit one of the criteria, it will initially be rejected. But they still have to go through the process of evaluation and this wastes their time.

Reserve limitations

In other cases, lenders on your shotgun list may have limits on how much reserve they'll pay. Even if they approve the deal, they risk losing it if another lender pays you more reserve. After approving a few deals without getting the paper, these lenders will become hesitant about continuing to approve future deals.

Impact on the customer

When you shotgun applications to lenders, several inquiries can appear on a customer's credit profile at the same time. Not only can this have a negative impact on the customer's score, but experienced finance people will often question several automotive inquiries. They'll naturally assume that other lenders said 'No', which is why they're now being approached. And this could unfairly result in a declined loan.

What you can do

The best practice is to evaluate each deal before you send it. Review the customer profile and determine which lender profiles are the best match. Send the application to no more than three lenders. If you get an approval from more than one, take the one that best meets your needs and the customer's. Here are a few additional thoughts:

Call the lender in advance - Try discussing a deal before sending it over. This builds a relationship with the lender and allows the lender to clarify any structure so you don't get as many 'automatic' declines.
Ask lenders to review deals when they visit - Most finance offices have a few pending deals on the rack when lenders drop by. Have them review the deals and make suggestions on how they would structure it. This can provide you with a wealth of knowledge and help you with all your deals.

Above all else, treat lenders the way that you would like to be treated. This will prove to be beneficial in building long term relationships with your lenders.