Available industry data is clear, if a repossession agent has not recovered a vehicle within 30 days of working it properly, the recovery rate after that point is typically in the 6%-9% range. This reality provides a strong incentive to rotate the assignment to a different provider in order to improve the likelihood that a charge off can be avoided. With that said, skip trace services can be an alternative to leaving the assignment with an agent for the final 20 days before charge off.
Historically, the obstacle to utilizing such a service prior to charge off has been cost. To materially improve recovery rates prior to charge off, a skilled skip tracer equipped with a wide range of tools is required. Accordingly, most reputable firms charge $650+ for a pre-charge off skip recovery which is significantly more than what an agent or forwarder will charge for simply leaving it as a first placement case. As detailed in the remainder of this article, while more expensive, the ROI on the additional investment in the recovery is well worth it.
The higher costs aside, the implications of not recovering the car prior to charge off are significant. In addition to having to charge off the loan, which everyone wants to avoid, resale valuations are falling every day due to depreciation. Also, in most cases, the fees charged for a post charge off skip are meaningfully higher than a pre-charge off skip case.
RETURN ON INVESTMENT ANALYSIS
The chart below compares two different repossession strategies. The first analyzes the value of a lender who leaves the assignment with the same forwarder. The second analyzes the value of a lender who rotates the assignment to a different nationwide skip tracing company. As you can see, rotating the assignment to another service provider has a much higher recovery rate and doesn’t need to generate much to offset the cost on all recoveries. Although the cost of pre-charge off skip is much higher, it delivers an ROI that makes it worth it.
While total repossession costs are higher, as clearly illustrated, the result of having pre-charge off skip outweighs the cost of service. It’s also important to note that while simply rotating the assignment to another forwarder or repossession agent will improve the chances for success, engaging a highly skilled skip tracing firm will yield significantly better results.
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