Mission-Critical Loan Origination Automation Guidance for Auto Lenders This Year
This year, the auto lending industry will still be facing some pandemic-driven challenges along with plenty of new lending opportunities. The auto loan industry is one of the most competitive in the credit lending arena. Advancements in lending tech continue to transform the industry, which is why lenders are upgrading to cloud capabilities and ditching their outdated legacy systems.
As the world continues to shift toward digitization, new technology is being implemented across lending institutions to keep up with the ever-evolving industry. Loan origination automation is one way that auto lenders can streamline their operations, stay compliant, and elevate customer experience to maintain a competitive edge. Let’s explore why automation is the key to successful lending in the coming years.
The goal of this mission-critical loan origination automation guidance for auto lenders is to provide guidelines for lenders to make sure that their automated systems are ready for the future.
Key Benefits of Automation for Lenders to Focus on This Year
In the auto lending industry, we are seeing a shift in the way loans are originated. This shift is primarily due to new technology, changing regulations, and consumer demands. Automation is the most significant factor driving these changes and this shift will become more pronounced in the future.
As competition increases, more lenders are turning to automation to improve their lending process. Loan origination automation is a key trend in the lending industry. To better understand how loan automation can help, let’s take a look at some of the benefits.
This loan origination automation guidance for lenders describes mission-critical objectives for lenders to focus on this year:
Keeping Up With Changing Regulatory Requirements |
|
Auto lenders are facing a number of challenges this year. A major one is the changing regulatory environment. With the introduction of new rules and regulations, auto lenders need to re-evaluate their current business models and make necessary changes to stay compliant. This is where automation comes in. Automation is a leading component for any lender that wants to be future-ready and stay compliant with regulatory guidelines. In the last few years, the regulatory environment in the auto lending space has changed quite a bit. The Consumer Financial Protection Bureau (CFPB) and other regulators have been increasing their enforcement activities in this space. This, in turn, has increased the pressure of maintaining compliance for auto lenders. Automation of the loan origination process gives borrowers and lenders transparency, efficiency, and a streamlined workflow. Automation gives lenders consistency and ensures that required steps are taken in the proper sequence. Automation eliminates variability and allows lenders to tailor their workflows to the specific regulatory requirements of their lending business. Automation also ensures near-immediate loan approvals and helps lenders capture the loans they need to grow their business. |
Increasing the Adoption of Digital Capabilities |
|
The auto lending industry is becoming more and more digitized. There has been a significant increase in the number of borrowers who are applying for loans online. As a result, lenders are looking for ways to automate their origination process to make it more efficient. The adoption of digital capabilities in the auto lending industry is likely to continue, as they offer faster loan origination processes and an improved customer experience. The historical loan application process of driving to a dealership or a bank is quickly becoming a thing of the past. These days, people want to be able to complete their entire car buying journey from their home. |
Providing an Intuitive, User-Friendly Customer Experience
|
|
A recent study by Experian found that nearly half of consumers are not confident that they understand how to take out a car loan. Additionally, more than one-third of consumers do not know what APR stands for. This study highlights how important it is for lenders to provide an intuitive, user-friendly customer experience by utilizing loan automation technology to streamline the process and provide customers with information about their loans before they sign on the dotted line. The latest automation technologies do more than just improve experience, they improve every step of the lease or loan origination process. |
Identifying Fraud Applications Before They’re Even Processed |
|
Machine learning algorithms are able to identify patterns in data that humans would not be able to see. This is helpful for lenders because it helps them reduce fraud applications. Lenders can use machine learning algorithms to identify patterns in data that would otherwise go unnoticed by the human eye. For example, if a person applies for a loan and has no credit, but has a large amount of income, the machine learning algorithm will recognize this pattern and flag it as suspicious. |
Auto Lender Loan Origination Automation Guidance
Aspects of the traditional lending process such as underwriting, making decisions, and closing deals take a lot of time and manpower. By automating the loan origination automation process, lenders can bring more efficiency and speed to the entire process and eliminate manual, time-consuming steps, freeing up your team so they can work on more complex tasks.
Let’s deep-dive further into what loan origination automation features are mission-critical for competitive auto lenders:
Decision Rules for Nearly Instant Approvals
Decision rules are a major contributor to why modern loan origination solutions are so efficient. Decision rules are the foundation for loan origination automation. These days, decision rules don’t require programming expertise to make modifications. With modern loan origination automation, solutions can be created and managed from configuration menus. As a result, lending professionals can easily implement and modify decision rules that reflect their unique business requirements in a matter of minutes.
Decision rules provide distinct benefits that improve lending efficiency and consistency including:
- Making consistent underwriting decisions.
- Eliminating manual, repetitive underwriting decisions.
- Providing a formal record of current and past decision policies in support of compliance regulations.
Auto Structuring for Increased Lending Opportunities
One of the most powerful automation tools for lenders is Auto structuring. With auto structuring, lenders can set their system to automatically restructure deals to match their credit policies. Auto structuring works by applying the rules that control how a system can modify a credit policy field in order to find a resolution. These resolutions can capture an immediate approval, or place a conditional approval. This automation feature can also issue automatic declines.
Auto structuring translates credit policies and underwriting decisions into a predictable, automated process. This allows lenders to capture more loan applications that fit within, or just outside of their lending process. It also accelerates decision time so lenders can respond in seconds.
Alternative Data for Better Lending Decisions
Alternative data delivers an additional layer of information in the decision making process, and in some cases is used as the sole benchmark for determining eligibility. This includes data that was not traditionally used in credit decisions. Alternative data can be anything from rental records, utility payment history, mobile phone payment records, driver’s license, to the borrower’s recent job history.
These emerging technologies are giving lenders a better understanding of their applicants’ financial profile. While alternative data is not a substitute for traditional credit scores, it provides lenders with more accurate information about customers, while filling in the conventional lending process gaps.
Configurable, Modern Loan Origination Systems
Adopting modern software with key automation components is a must for any lender that wants to be future-ready. Modern cloud-based, configurable systems are the way forward when it comes to automation. Compared to legacy systems of bygone days, modern systems are built with new technologies, and are easy to deploy.
It is clear how lending institutions of all sizes are starting to see the benefits in moving away from outdated legacy systems. The latest automation enables efficient, error-free workflows. With configurable software lenders can customize their loan origination system with the various features they need to make quick and accurate decisions, comply with regulatory requirements, and improve their customer experience—all from a configuration menu. Another added benefit of modern, cloud-based software is easy configuration without the need to hire professional developers for every organizational or regulatory change. Lenders that invest in the right cloud-based systems stand to reap huge benefits over those who don’t.
Getting Started
defi SOLUTIONS provides modern, flexible solutions, for the end-to-end lending lifecycle that provides all the foundational lease or loan origination automation and servicing components you need. You can build a successful solution with lower costs, faster delivery, and stamp your brand in the industry. If you have any questions or need further loan origination automation guidance, Contact our team today or register for a demo.
