AI-based financier Pagaya Technologies plans to expand its new relationship with subprime auto lender OneMain Financial to an enterprise agreement as Pagaya eyes continued growth and gears up to add counteroffers and refinance options for consumers. 

“There’s consolidation going on in the industry, and the relationship that we will have [with OneMain] will be at an enterprise level … across auto and personal loans,” Pagaya President Sanjiv Das told Bank Automation News sister publication Auto Finance News.  

OneMain will use Pagaya’s AI-based underwriting capabilities to lend to consumers outside of the financier’s existing credit criteria, according to an Aug. 6 Pagaya release. OneMain offers online financing and has 1,300 locations across 44 states. 

The subprime lender will work with Pagaya on auto loans before expanding into the enterprise relationship to include personal loans in the coming months, a Pagaya spokesperson told AFN. 

OneMain Financial was the 38th-largest auto lender by outstandings at yearend 2023 with a portfolio of $5.6 billion, up 14.5% year over year, according to the latest Big Wheels Ranking data. 

Pagaya purchases loans originated to its criteria from banks and other lenders then securitizes the loans to fund additional originations. The company has $435 million in subprime auto asset-backed securitization (ABS) issuance so far this year, according to Finsight, which monitors securities.  

“We are finding that investors’ expectations on yield net of credit losses are substantially improved, which is saying a lot in terms of the health of the consumer,” Das said. “There is a significant improvement in consumer behavior in terms of delinquencies. Our own book is performing quite well.” 

OneMain is the latest to join Pagaya’s network, following Exeter Finance in December and Westlake Financial in September 2023. Pagaya works with about 10 auto lenders, including Flagship Credit Acceptance and Stellantis Financial Services, Das said.  

“By the end of next year, we’ll have about 60% of auto financing covered in terms of second-look product from Pagaya,” he said.  

Building on the ‘second-look’ product 

Pagaya’s second-look product comes in when a consumer applies for a loan and doesn’t fit the criteria of the lender; the loan is rejected upon first look by the lender but approved by Pagaya, Das said.  

Pagaya is looking to build upon its second-look product with Ally Financial and other network lenders, Das said. Ally joined Pagaya’s network in February 2022 for credit cards and in May 2022 for auto loans, according to Pagaya.  

“We’re talking with Ally about growth in terms of how we get deeper into their dealer network; not just a second-look product, but also a first look, counteroffer product,” Das said. “That way we give more choice to the consumers and add more value to the dealers.” 

A counteroffer, or “first-look” setup, would allow Pagaya to present its offer alongside the lender’s with potentially more favorable terms or rates for the consumer, Das said. Pagaya could also present its offer on behalf of the lender as a standalone to the consumer, he said. On the consumer’s end, Pagaya’s offers are still presented from the financier. 

“If Pagaya bids for that loan and Pagaya gets it, then Pagaya takes it off the balance sheet of [the lender],” Das said. “We want to go deeper with our existing customers; that’s something we’re in the early stages of discussion with and will progress more toward the second quarter of next year.” 

“We want to go deeper with our existing customers.” — Sanjiv Das, Pagaya

Pagaya is also looking at expanding its second-look and counteroffer products to existing customers for refinance and to consumers have been inactive with a particular lender for some time, Das said. Pagaya has had success with similar efforts for personal loans and is looking to replicate it in auto finance, he said. 

“Pagaya wants to be a partner to [the lender] and offer a second look or counteroffer product to the client,” he said. “It’s reaching out to existing customers for new loans or refinancing. Particularly with rates coming down, refinancing will be a big deal going forward.” 

Editor’s note: This article first appeared on Auto Finance News, a sister publication to Bank Automation News.