Consumer Portfolio Services , often abbreviated as CPS, is a publicly-traded company which provides indirect financing for automobile purchases by subprime and deep-subprime buyers. Founded in 1991, they have become one of the largest providers of subprime automotive finance in the United States. By understanding how CPS affects the consumer’s financial profile, one can gain an appreciation of the importance of this company’s role in American finance.
What Is Consumer Portfolio Services?
At its core, Consumer Portfolio Services is an auto loan servicer that specializes in providing finance options to those with poor credit or no credit history. When dealers offer financing to their customers, CPS is the lender behind those loans. They do not engage directly with the customer, instead acting through the dealership. Customers obtaining financing from CPS typically pay higher interest rates than those who qualify for prime lending.
Impacts on the U.S. Economy
The presence of Consumer Portfolio Services in the car finance industry has been welcomed by many as it offers those with less than desirable credit scores a chance to obtain car financing. This has allowed thousands of people to purchase cars without having their requests denied due to a lack of creditworthiness. Moreover, the potential economic benefits of increased car sales are significant. The more people who can purchase cars, the greater the demand for auto parts and other related services, thus prompting further investment into local businesses.
The Effects on Credit Scores
The terms of a loan obtained through Consumer Portfolio Services can sometimes reflect poorly on a borrower’s credit profile. This is because higher interest rates, late payments, and defaults all tend to adversely affect a person’s score. With that being said, it can be argued that CPS helps borrowers build their credit scores over time if they adhere to their payment obligations. The timely repayment of all debts will always contribute positively to a person’s overall rating with the credit bureaus.
Alternatives to Consumer Portfolio Services
In some cases, an individual may not need to resort to taking out a loan through CPS in order to finance their vehicle. Financing arrangements with the dealership themselves could be available, as could leasing options. Additionally, alternative lenders exist that are willing to approve car loans for people with bad credit. Before settling on CPS as a last resort, other avenues should be explored in order to find a loan that fits the needs of both the borrower and the lender.
Risks Involved With Consumer Portfolio Services
When obtaining financing from CPS, the borrower runs the risk of defaulting on the loan if they are unable to make the required payments. This can lead to repossession of the vehicle, liabilities for remaining balances, and damage to the borrower’s credit score. Fortunately, however, these risks can be managed by having a full understanding of what loan terms are being agreed to before signing any contracts.
Conclusion
Consumer Portfolio Services plays a large part in helping individuals with poor credit obtain a car loan. While there are risks involved and other alternatives to consider, CPS provides a necessary service to those in the subprime market. By carefully analyzing the terms of the loan and understanding how making payments on time can help build credit, borrowers can use CPS to their advantage.