Written by: Eric Bank
Edited by: Lillian Guevara-Castro
Reviewed by: Adam West
Key Takeaways
- Arra Finance's acquisition of Crescent Bank's auto loan unit is part of a larger trend — subprime auto lenders are merging to survive.
- The arrangement significantly boosts Arra’s lending power and also imparts a technological advantage with e-contracting solutions.
- Increased sales staff and more stringent dealer arrangements may encourage smaller competitors to reassess their positions.
Arra Finance, a Texas-based lender, has agreed to buy Crescent Bank’s auto finance business, a move that points to a changing landscape in which fewer, stronger lenders begin to rule in the subprime auto lending industry.
This is not just a matter of putting more loans on the books. Arra is going for velocity and volume. By adding Crescent’s loan servicing system and e-contracting technology, Arra reports that it can now approve loans in a matter of seconds.
That’s a far different experience from the glacial processes that a lot of lenders continue to use, and it indicates where the industry is going.
Just as important, Arra is gaining 24 veteran sales professionals. They already know how to sell to auto dealers, so they ought to assist Arra in building its presence in dealership networks.
That dealer connection is central within subprime lending, in which contacts can make all the difference in results.
The Bigger Picture: Fewer, But Larger Players
Arra’s recent move is part of a larger trend. Subprime auto finance is competitive, but not everybody is keeping up. With higher rates, stricter lending standards, and increased scrutiny, smaller players are starting to feel the burn.
That’s driving mergers and acquisitions, and Arra’s transaction with Crescent is just one indicator that this is the case.
Other players are making the same moves — seeking scale, keeping overhead low, and grabbing a greater share of the market. Another example is OneMain’s acquisition of Foursight Capital last year.
Lenders that lack a route to grow or to innovate may not survive. What was once a diffuse industry is coming into focus as a more consolidated one.
Tech & Team: More Than a Loan Book
What sets this deal apart isn’t the portfolio — it’s the platform and the individuals. Arra’s not acquiring dead weight. It’s hiring to move with greater velocity and individuals who already know how to close deals. That’s a double win not often seen.
It also pressures others. If you’re a subprime originator with unimpressive automation or a poorly connected sales force, this transaction is a cause for alarm.
With delinquencies rising and the need for cost control, it’s not sufficient to continue business as usual. More rapid processing and improved dealer support are becoming necessities.
What’s Next?
With Crescent’s business firmly in its corner, Arra is ready to become a national player. The challenge is tying it all together in a hurry and not running out of steam. But the plan is simple: get big, get quick, and stay in close proximity to the dealers.
For competitors, this may be a crossroads. In the absence of a plan for scaling or modernizing, some lenders could be squeezed out as the market reformats. Small and scrappy auto lenders are being replaced by those that are streamlined and strategic.
