In this digital age everything needs to be provided fast and at the most convenient way and auto lending industry should not overlook this as well. In fact, going digital is the best possible way to brighten the future of the auto lending industry which by it is a highly competitive world.
The key factor in auto lending and financing is to make the right credit decision as quickly as possible. This will not only help in staying competitive but will also ensure high revenue. Given the fact that there is a steep rise in the demand of auto financing, you will surely lag far behind your competitors if you rely on manual process for loan origination, risk factoring, decision making and others.
If you want bring agility and quality in your deliverance of loan products there is no other alternative but to go digital. Apart from the above benefits, you will also get immense help in delivering better pricing options to your customers which will in turn win you more businesses.
Need to drive innovation
Therefore, to drive more customers and business you will need to drive innovation and use sophisticated automation. You will need to make sure that all traditional and time consuming manual processes are replaced with digital processes that will help you to provide better and faster service including:
- Instantaneous credit decisions that are customized according to the needs and demands of each customer
- Finding credit-worthy applications fast
- Handling more applications with straight-through processing
- Analyze complex requests with more careful analytical tools and
- Simplifying and streamlining the entire auto lending process from start to end.
All this will reduce time and costs of lending. This will also be very beneficial because with integrated credit decision making and loan origination, risk level will be automatically determined thereby reducing the chances of:
- Fall backs
- Collection costs and
- Bankruptcy litigations.
Most importantly, you will not need any referring to a credit specialist of any loan application for further analysis and thereby reduce time.
As for the consumers, they will have easy and faster access to car loans. They will also not have to worry about their monthly payments as all factors will be considered and risks eliminated during the origination of the loans by the mender. That means, they will be able to repay their loan on time and as desired saving them from all the troubles of:
- Searching for debt relief options
- Reading several lending reviewsand ratings to find a proper debt relief company and
- Follow a strict debt management plans which has very low rate of success as people often fail to complete the term.
Innovation and digitization will provide you with a lot of benefits in lending process, analysis and ensure success. It will help you to:
- Obtain businesses from all dealers with the help of a one-stop portal
- Calculate and analyze all possible scenarios with respect to all dealers to determine which dealer and scenario yields the highest and best opportunity.
- Comply with and improve the risk models that can be developed virtually in any analytics tool such as Excel, R and SAS
- Automate and operationalize your decision making processes
- Increase agility
- Use more business friendly and visual configuration tools
- Create better and improved rules and workflows
- Respond immediately to new opportunities
- Remain more competitive
- Face any given challenges and
- Make regulatory changes.
With automation and digitization, you will be able to overcome all possible problems commonly associated with auto lending market which typically lacks transparency.
Features of the auto lending market
The discretionary and discriminating features of the auto lending industry are the primary reasons for the consumers to face many different negotiations while purchasing a car on loan. These include:
- The price of the car
- The value of a trade-in
- The financing policy and amount
- The decision to make regarding the purchase of any add-on products such as service contracts, extended warranties and insurance products.
These features have also resulted in the lack of transparency in the lending process and the market, misaligned incentives, and systemic abuses that the consumers often face. These abuses include:
- Interest rate markup by the car dealers – This is the discretion of the car dealer especially when a consumer finances a car purchase through them. This is over and above the rate of interest offered by the bank or any financial institution. They keep the difference, all or a portion of it, as their profit. As per statistics, this difference in car financing rates costs the consumers more than $25.8 billion as hidden interest over the entire tenure of their auto loans.
- Yo-Yo scams – These are scams that usually occur when financing is not finalized before the new vehicle is taken by the consumer from the dealer. This practice is also termed as spot delivery or conditional delivery wherein the dealer may tell the consumer that the loan “fell through.” They ask the consumers to come back to sign a new loan that will typically have a higher interest rate and may also come with less favorable terms.
- Add-on products – Just as the name implies these are additional products that are included in the lending policy making the consumers feel that these aftermarket products are required for the loan as such. However, these products are often overpriced or lack value and according to CRL research it is seen that these products are usually sold to the borrowers of color.
- “Buy Here, Pay Here” – This is a special type of dealership where the dealers finance used auto loans typically in-house to consumers that usually have poor or no credit histories. Ideally, for such type of auto lending the average APR tends to be much higher as compared to any bank or credit union loan. These dealers are more like a payday lender who uses the higher repossession or default rate to sell a product. This abusive business practice allows the dealers to churn the same used vehicle several times.
However, recently there has been an increased focus in the regulatory attention which was avoided by the big players in this particular industry until recently.