auto lending risk management

AUTO FINANCE INDUSTRY TRENDS THAT WILL DISRUPT LENDING AS WE KNOW IT IN 2019

The defi Team defi ANALYTICS, defi INSIGHT, defi LOS

auto finance industry trends

Let’s begin with this top-of-mind, worrisome auto finance industry trend: After years of growth, auto sales are declining. It’s a tough market out there. Sales have been declining since 2017, and we’re expecting the fall to continue through 2018 and possibly into 2019. Sales predictions for 2018 range from –1.5% (BMI Research) to -5% (Nord LB bank).

There are technical, demographic, and economic sub-trends that explain the decline. Car owners are keeping their (better-made, more reliable) vehicles longer. Used car inventory is high, which reduces demand for new cars. City-dwellers often prefer car-sharing, biking, or Uber/Lyft to owning cars outright. Rising interest rates have also made consumers wary of taking on new debt—especially if their wages have been stagnant. The auto finance industry trend of declining sales means fewer auto loans, greater competition among lenders, and the need to optimize loan portfolio profitability.

While manufacturers and dealers contend with declining sales, customers are asking “Why is the auto loan process so complex, and why does it take so long to reach a credit decision?” Compared with how retailers, utilities, airlines, hospitality providers, and other industries have used the internet and mobile channels to improve the customer experience, auto lenders are playing catch-up. Customers want simpler loan applications—and faster decisions about those loans. Whether you currently offer auto financing or want to do so, you need a great lending experience, and to make yea/nay decisions on loans as quickly as possible.

Fortunately, there are two auto finance technology trends to help you thrive in this increasingly-competitive market: cloud-based lending and analytics-driven portfolio optimization.

Deliver a Better Lending Experience

The best lending solutions are born in the cloud. They fully exploit the proven technical capabilities of the cloud to enable a better lending experience. The benefits for lenders are undeniable: faster implementation, continuous delivery of new functionality (key to improving the lending experience), frequent software fixes and updates, and cost savings when compared to on-premise legacy lending systems.

A modern loan origination solution delivered via the cloud provides the latest features and functionality that counter criticisms of complex process and lengthy credit decisions. It simplifies the lending process and facilitates faster decisions by:

  • Allowing loan originations to be initiated anywhere there is an internet connection and browser—home, dealer, credit union, or bank
  • Digitizing loan documents to eliminate the cost and delay of shipping paper to the lender, reducing processing and response time
  • Replacing manual processes with automation and business rules to process more loan applications with greater accuracy and consistency
  • Integrating with alternative data sources to quickly and confidently qualify credit decisions

By employing modern lending functionality delivered by the cloud you can cost-effectively process more loan applications. You’ll also make better quality lending decisions that positively impact profit.

Optimize Loan Portfolio Performance

Internet-connected devices and low-cost storage make it easy to acquire volumes of customer and industry data. However, the true value of that data is revealed through analytics.

Until recently, analytics was the realm of specialists—statisticians, actuaries, and analysts. You needed to employ individuals with skills to see what your data foretold. However, software vendors understand the value of analytics and are developing and delivering analytic tools that are tightly integrated with their software offering. These tools help lenders identify patterns, trends, and anomalies in their portfolio and lending processes—all without need of dedicated in-house analysts. Lenders who fail to recognize the importance and value of analytics deprive themselves of a competitive edge in the current market.

By applying analytics to your portfolio you can gain a better understanding of where and why you are profitable, as well as where and why losses are occurring. With regular use of analytics you can:

  • Identify the most profitable deal sources
  • Determine borrower characteristics that indicate potential delinquency risk
  • Identify key factors that lead to lost sales
  • Monitor approval, book-to-look, and capture ratios by week, month, or years
  • Identify bottlenecks in loan processes and eliminate them

Insight enables action. Analytics help you modify and fine-tune lending policies and practices—and respond to market changes quickly when needed.

Counter Auto Finance Industry Trends with a Better Lending Experience and Portfolio Analysis

Lenders who succeed in a market where auto finance industry trends are less than optimistic will do so because they provide a better lending experience via cloud. It will enable them to significantly improve the ease and speed of the lending process, differentiate their services from those who remain wedded to outdated systems, and reduce transaction costs by more efficiently processing applications while achieving better quality credit decisions.

Analytics also plays a decisive role in lender profitability. In less than ideal market conditions, analytical insights can be the difference that helps you rise above the competition and increase profitability.

defi SOLUTIONS provides a flexible, innovative loan origination software platform that gives small to large lending institutions the tools they need to compete efficiently. defi’s industry-leading, browser-based loan origination system (LOS) is completely configurable and quick to implement. Analytics gives you the insight you need to make more informed lending decisions. Our team welcomes the opportunity to learn more about your lending needs. Contact our experts online, or schedule a demo to see how our solutions help you remain profitable in an increasingly competitive market.

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