What is yield?
Yield is the return a lender earns on an auto loan relative to the money it puts at risk. It depends on the interest income, the amount financed, the term and the risk that the borrower stops paying.
Yield is not APR
What the borrower is charged for the loan.
What the lender or investor actually earns. Fees, cost of funds, losses and the calculation method all move it.
Higher rate ≠ better deal
Two loans, same amount and term. (Illustrative example.)
Loan A
- Amount
- $20,000
- APR
- 12%
- Term
- 60 months
- Risk
- Lower
Loan B
- Amount
- $20,000
- APR
- 18%
- Term
- 60 months
- Risk
- Higher
Loan B charges more, but if it is more likely to default, the extra interest can be wiped out by losses. What matters is the return relative to risk and cost, not the rate alone.
What moves yield
| Factor | Typical effect | Why |
|---|---|---|
| Higher APR | Raises yield | More interest income, if the borrower keeps paying |
| Larger down payment | Lowers risk | Less money at risk and more equity in the vehicle |
| Shorter term | Lowers risk | Balance pays down faster; less time for things to go wrong |
| Higher LTV | Raises risk | Loan is large next to the vehicle's value, so recovery covers less |
| Stronger credit | Lowers risk | Lower chance of default and delinquency |
| Lower cost of funds | Raises net yield | More of the interest stays with the lender |
These factors interact. A longer term may lower the payment but raise risk; a higher rate on weak credit may not pay for the added losses.
Quick scenario
A buyer has weak credit and the deal has a high LTV. Asking for a larger down payment may reduce your exposure and improve the risk-adjusted return. But don't assume: check the actual numbers for that structure before you fund.
Which "yield"?
- Gross yield: the return from interest and fees before costs and losses.
- Net yield: what is left after cost of funds, losses and other expenses.
- Annualized return: the return expressed as a yearly rate so different terms can be compared.
In AutoYield: the yield number is an annualized return on the cash the lender actually pays out on the deal (the check to the dealer plus back-end product costs), measured against the customer's monthly payments at the rate you enter. Lender discounts, fees and products are included, so you see what the deal really earns, not just the APR.
Our mission is to show you exactly how every change to a deal affects profit and risk, so you can make smarter financing decisions and lower losses and delinquency.