Credit Acceptance Corporation (CACC) is an auto finance company. It mainly provides loans to sub-prime borrowers purchasing automobiles. The company’s model is unique in the sense that it partners directly with auto dealers rather than purchase a loan from which the dealer originates. CACC structures the deal in such a way that both the interests of the dealer and CACC are aligned, and both receive upside if the loan does well. Therefore, CACC’s risk levels are much lower. Additionally, the pandemic-led downturn will likely weed out weaker players who have been under-pricing loans and provide a long-term growth runway for CACC. Many investors look at banks or other financial institutions to invest. However, niches like the one Credit Acceptance Corp operates in can offer some candidates for the best finance stocks to buy right now.
How does Credit Acceptance Corp do it?
Credit Acceptance Corp relies on technology to be proactive about repayments and uses algorithms to price loans given to borrowers with bad or no credit. Technology allows Credit Acceptance Corp to assess credit risks involved with a particular borrower immediately. By addressing the sub-prime/no-credit market, Credit Acceptance Corp offers a solid value proposition to both borrowers and auto dealers. Borrowers who would never have obtained an auto loan can get credit. At the same time, auto dealers who would have otherwise turned away sub-prime customers for lack of financing can now make the sale thanks to Credit Acceptance Corp. Additionally, Credit Acceptance Corp is viewed as a shareholder-friendly company with its buyback program. The company is considered by many as one of the top finance stocks to buy.
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Credit Acceptance Corp’s stock closed at $363 on 26th February 2021. The market capitalization at the time was over $6.1 billion. The stock was down 8.7% over the preceding 12 months though it had gained 68% since the March 2020 market fall. The stock has been rather flat since October 2020.