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What is the point of NADA Clean Loan?

Discussion in 'Vehicle Merchandising & Inventory Software' started by Eric88, Jul 5, 2019.

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  1. Eric88

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    What exactly is the point of NADA's "Clean Loan" value?

    I ran a calculation and it looks like it's almost always exactly 90% of the Trade-In value for every vehicle/VIN in our system.

    NADA describes this value as "Suggested amount of credit that may be obtained on a vehicle based on the Clean Trade-In value. Providers of vehicle financing determine the amount of credit they are willing to extend on a vehicle."

    I'm conflicted on how to read this. Does this mean that, if NADA were the bank, that's how much they'd lend on a given vehicle? There's a pretty major gap between the Clean Loan value and their suggested retail values. What am I missing?
     
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  3. john.quinn

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    It's a lending guideline. It 's a book value. Some books are trade, some are wholesale, some retail, etc. How is a bank to know what's a reasonable amount of money to loan for a particular unit? It answers a question like that... reasonable guard rail.

    Doesn't mean a lender won't loan more than that (or less) -- see lender guidelines for that :) When you see stuff like 110% for A++ Tier, you start to put it together.
     
  4. Eric88

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    Thanks, John! I appreciate the insight. :)

    I guess this gives me a follow-up question:

    Does this generally mean that some lending institutions will use this figure to calculate an LTV? Or are there certain situations where a lender would use this figure?

    The reason I ask is, I work with a ton of lenders and not one of them ever have asked me for this value. Usually if we’re dealing with NADA, the lending institution will calculate (or request) a LTV for Trade, or an LTV for Retail. I guess I’m hung up on why this value specifically exists.
     
  5. john.quinn

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    Hi @Eric88@Eric88 Welp, I doubt there's very many orange books lying around bankers' desks these days, but the "services" that account for the aggregation of these numbers are very relevant to lending institutions.

    I've never actually worked in a bank, but my impression is that before the prevalence of electronic data, NADA book values were the "Granddaddy" of values. In one book, with a quick look, you get a sense for the guardrails between trade, retail, and how you should be setting-up your financing. Unless there's another dinosaur like Doug Davis lurking around here, it's hard for many on this forum to envision how all this data was exchanged before the digital age.
     
  6. john.quinn

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    Just noticed these lines within a very popular dealer calculator:

    upload_2019-7-20_15-56-42.png
     
  7. Eric88

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    Oooh thank you!

    So they take the base NADA retail (in this case probably the one that includes VIN accessories, but not mileage) and then they add the mileage adjustment, and then blow it up to 140.00%, I assume as a guideline to compare the Total Amount Financed?
     
  8. john.quinn

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    I think the 140% is this particular lender’s Max LTV.

    (The screen is a snippet of a particular lender’s loan program for a specific vehicle).

    Lenders will often adjust the rate based on the % of LTV.
     
  9. Eric88

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    Ah, I didn't realize it was a lender's loan screen. That makes sense!
     
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