How Loan Origination Automation Improves the Auto Lending Experience For Customers

Loan Origination Automation: A Business Case for Adopting Better Lending Technology

How people buy vehicles continues to transform, with many of these changes occurring due to new technology adopted to enhance digital auto lending. Business models for auto lenders have incorporated the use of financial technology (fintech) into their operations, and this has quickened due to the effects of the COVID-19 pandemic. Starting in 2020, consumers increasingly sought to utilize buying methods that limited in-person contact. The auto loan industry was moving towards digitalizing in any case, but the pandemic helped accelerate this. In fact, 2022 research by Cox Automotive found that about 70 percent of buyers preferred to do at least part of their car shopping online. 

The increasing use of fintech during the pandemic introduced new digital tools like interfaces for easing loan applications and authentication technologies that make contracts more secure. These tools are often joined to aggregated platforms that allow consumers to shop online for loans before going to a dealership. Some fintech even introduces unique financing options such as individualized interest rates and flexible lending terms. Digitalization has additionally introduced new ownership models, such as car subscription services that mimic leases, with more flexible and much shorter terms—many also include insurance and maintenance costs in the contracts. Digital auto lending business models will continue to evolve, embracing cutting-edge technologies that are advantageous to both lenders and borrowers.

Advancing Digital Auto Lending Business Models

Traditionally, the car buying experience involved physical visits to dealerships, with in-person price negotiations and haggling over vehicle features. However, COVID turned this conventional buying experience on its head. Digital transformation, which had been inching steadily forward, now had to make a huge leap to keep businesses operating.

Even as the pandemic fades into the background, neither lenders nor their customers are likely to return to the inefficient processes of yesteryear. Though three-quarters of consumers still want to buy a vehicle in person, Deloitte’s 2022 Global Automotive Consumer Survey showed nearly a quarter of consumers still want a digital option. However, when it comes to certain tasks like credit checks or financing of vehicles, consumers now prefer to do many of these tasks online. 

A 2020 Harris poll found consumers prefer to do the following online:

  • Search for vehicles (80%)
  • Establish final pricing (78%)
  • Arrange to take possession of vehicles (76%)
  • Confirm value of trade-in vehicles (75%)
  • Perform credit checks and other financing (74%)
  • Assess and pay for insurance or extended warranties (73%)

Already 95 percent of auto buyers use digital means to source vehicle information, and twice as many buyers use online research first rather than going to a dealer. Though such things as test-driving vehicles virtually are still in their infancy, the days of virtual test drives is coming. Right now, the bulk of new digital auto lending business models look to streamline parts of the process that buyers loathe, such as paperwork, long waiting times, and dealing with the minutiae of financing.

How Fintech Drives Lender Efficiency

As fintech develops and people become more comfortable shopping for and financing vehicles online, lenders will see customer needs shift. From a single point of contact, auto buyers will be able to insure, finance, and manage data surrounding their vehicle purchases, along with accessing other personalized services. This will also allow lenders to maintain links with buyers to increase loyalty and stabilize their cash flow while making the process more customer-friendly.   

Lenders, meanwhile, need to consider: 

  • How to employ data analytics effectively to both enhance customer experience and protect against negative events like defaults or repossessions.
  • What digital technologies will make their processes more customer-centric.   
  • Which products and services to offer virtually to customers.
  • What capabilities are likely to increase market share in the future. 

Digital technology is already driving quicker reviews and approvals, allowing borrowers access to financing that immediately suits their needs. With the introduction of digital interfaces, lenders are able to build solid portfolios of auto loans while maintaining stringent standards for risk. 

Harnessing the Power of Digital Lending Platforms

New technology not only disrupts the established way of doing things, it often changes how people engage with the world. This is just as true with the technology introduced into the consumer auto lending process. Fintech helped keep auto sales going through the pandemic, though in the process, it drastically changed the way borrowers perceive the whole auto loan process. 

Technology and circumstance ultimately altered how lenders approach auto loans. Customer experience has become more central to the lending process, and cloud-based lending platforms play a significant role in providing lenders’ customers with a good experience. While adapting to digital auto lending, business models for lenders must always consider customer experience throughout the lifecycle of a loan. Consumers can then enjoy the benefits of a true end-to-end loan process.

Effective digital lending platforms should: 

  • Allow applicants to submit online and via mobile devices
  • Drive prompt decision-making on applications by applying self-service technology to speed up preapprovals. 
  • Enable applicants to submit information quickly and easily. 
  • Continuously monitor applications in order to identify red flags that may impede approvals. 
  • Include software with capabilities for collecting, managing, and transferring loan information. 
  • Integrate a chat service to allow real-time answers to any questions posed.  
  • Offer an easy-to-use interface that facilitates the completion and submission of applications. 
  • Permit digital submission of documentation, such as identification, proof of address, or proof of income.  
  • Utilize software that compares data provided by the borrower to that contained in secure financial databases to ensure accuracy.  

Ensuring borrowers can apply for a loan regardless of the time of day, or their location expands a lender’s opportunities. The easier lenders make it for motivated consumers to apply for a lease or loan, the more likely a borrower will be to go with the lender. Given the fact that borrowers are getting increasingly comfortable with digital auto lending, business models should embrace these technologies in order to reap their benefits. 

Making Platforms Flexible and Scalable

It’s undesirable to build out monolithic platforms that look at only one aspect of the process, such as creating software that only handles dealer management or online marketing. To create a truly flexible and scalable solution, digital transformation should concentrate not on the product but on the platform. The customer will remember the experience when using a lender’s platform just as much, if not more, than the products and services a lender provides.

Digitizing User Experience in Auto Lending

By modernizing digital auto lending, business models can improve upon customer experience. This will also mean rethinking certain lender strategies for origination, servicing, and collections of loans. Processing loan and lease applications online saves both lenders and applicants time and money, thus improving a customer’s experience. 

Streamlining processes will also improve service and reduce call volumes to customer care centers while also improving customer satisfaction. Online loan applications go into a central database on a digital lending platform that allows lenders access to all of an applicant’s information in one place, updating automatically as the customer inputs data. Even a simple change like this will enable borrowers to modify their personal details online without having to contact a customer service representative will lead to a better borrower experience.

Using technology to streamline applications improves borrower experience by:

  • Causing fewer instances in which incomplete applications can delay reviews. 
  • Consolidating customer information to make the process easier.
  • Encouraging more transparent communications between customers and lenders by providing details upfront on precisely what information is needed.
  • Making the process more transparent, leading to quicker turnarounds on financing decisions.

Both lenders and borrowers benefit from digitizing the flow of information and its access. It reduces bottlenecks in the application process while improving transparency. Digital auto lending business models should allow applicant data collection through a single interface to lower the chance of error and eliminate the need for manual input while enabling access to this information from a centralized database. This helps speed up the decision-making process while customizing workflows for lenders so that they can easily trace financial data and other relevant information. 

Outsourcing Fintech & Business Functions

Many lenders are also turning to business process outsourcing (BPO) as part of their digital auto lending business model. By outsourcing certain business or technological functions, BPO providers help lenders scale their businesses to achieve greater efficiency. When processes become more efficient, customers have a better experience with the lender. Meanwhile, an outsourcing partner can enhance a lender’s ability to manage risk and increase returns. 

Ending Paperwork: eSignature & eContract Solutions

Though paperwork is largely being abandoned for digital auto lending, business models for auto lenders haven’t yet become completely paperless. Part of the problem is compliance. Some auto dealers (and lenders) see paper contracts and other required forms as more secure. However, processes using paper are both less secure and take longer to complete.

Today, electronic transactions are much more secure than paper mailings, as they’re encrypted. This makes it much harder for unauthorized people to access customer accounts. This data is also stored securely and available for audits and other compliance purposes when needed. By presenting a definitive history of loan modifications, cloud-based digital platforms help lenders stay ahead of changing regulations. 

Solutions for creating paperless loans and leases include:

  • Electronic contracts (eContracts) for auto financing or leasing provides users with an end-to-end digital solution that automates vehicle financing paperwork. It makes applicants adhere more closely to lender policies as the system won’t move forward without required documentation. 
  • Electronic signatures (eSignatures) reduce operational costs by accelerating the loan or lease application process while also increasing customer satisfaction. Lending platforms need to be integrated into existing content management systems to allow signatures to be captured electronically via voice recordings, signature devices, typed text, or uploaded images. Configurations for eSignatures should improve workflow to accommodate multiple signatures and signers, sequencing, and routing arrangements.  
  • Electronic vaults (eVaults) store each eContract so that there’s only one copy of the contract, ensuring the reliability of the document. eVaults maintain a time-stamped audit trail and show evidence of any changes throughout the loan or lease lifecycle. A derivative of this, the omnivault, offers capabilities designed for the auto finance industry. It provides secure digital storage in a single space that allows tighter control, enabling users to track access, retention policies, and status changes throughout the life of a loan. 

When paperwork is required to complete a vehicle purchase or lease, it makes the process so much less efficient. Efficiency in any business affects profits. For this reason, eSignatures and eContracts have become more prevalent, as they allow lenders to process contracts and fund loans more quickly while also improving cash flow.

Getting Started

defi SOLUTIONS offers lenders an end-to-end, total solution for the loan or lease lifecycle. Partnering with captives, banks, credit unions, and finance companies, defi’s market-leading, forward-thinking and innovative solutions help lenders exceed borrower expectations. From digital engagement through the complete lending process, defi sets new standards for flexibility, configurability, and scalability in origination and servicing (by your experts or ours). If you’re curious about the possibilities of a complete end-to-end solution for your unique lending lifecycle and improving the loan origination automation experience for your customers, take the first step with our advanced solutions. Contact our team today or register for a demo.

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