Home » Carvana enters into auto loan agreement with Ally Financial
Carvana enters into auto loan agreement with Ally Financial
The auto loan facilitation announcement sent Carvana's stock rising for several days.
Carvana, a major used car retail platform from the US, recently saw it's share price rise by 43%. The sudden surge followed a newly announced deal with Ally Financial, one of the biggest auto financing companies in the US.
The new deal will provide Carvana its receivable financing services under an agreement that can be renewed annually.
Now when consumers using Carvana's platform need an auto loan the company will list the loan on its own books and sell a large portion of the receivables to Ally. Carvana will also put some receivables into bundles and sell them to other companies.
This one year agreement means Ally agrees to buy around $2 billion in receivables which doubles Carvana's current limits. The new deal will also take the long-term auto lending burden off of Carvana's plate. Ally will be purchasing these loans and collecting the payments including interest and fees.
Even as the COVID-19 pandemic continues and some expect a downturn in auto sales many online platforms are seeing an uptick in traffic. Bolstering Carvana's ability to provide loans and increasing Ally's loan facilitations has indicated to investors that the future may still be bright for the market.
Carvana also announced this agreement will lower some of Ally's requirements for auto lending and allow the platform to facilitate more loans to more consumers. Especially when some customers may be struggling during the pandemic. Opening up more loans could lead to more sales for the company.
This all follows years where investors would only short Carvana's stock. Without long-term faith in the company investors rarely saw the upside to Carvana despite years of innovation within the physical and digital used auto sales market. As the pandemic forces more companies and consumers to venture into the digital space, Carvana may be uniquely placed to find success.