The rise of big data is transforming how organizations plan, manage, and evaluate their businesses. Auto lending is no different. Data acquired through volumes of applications and generated throughout the loan origination process provide a wealth of insight that can be used to continuously improve auto lending efficiency and profitability.
Legacy auto lending solutions weren’t built for big data and analytics. We address this topic in our recent It’s Time to Trade Excel & Access for Integrated Auto Loan Analytics blog. Only a modern loan origination solution, employing the latest fintech capabilities, lets you truly benefit from big data and analytics.
Analytics Without the Need for a Data Scientist
A modern loan origination solution’s approach to analytics is superior to a legacy solution in two ways. First, analytics is tightly integrated with the loan origination process. Second, there’s no need to be a data scientist, find technical skills in-house, or contract with consultants to develop the reports you need. Let’s look at a few specific examples that demonstrate the value of integrated analytics and how it leads to improved auto lending efficiency and profitability.
Auto Lending Efficiency for Originations
Analytics allows you to identify areas of process inefficiency based on quantifiable metrics, investigate the underlying causes, and implement changes to remedy the problems. Analytics also provides an in-depth understanding of applications you receive and the lending decisions you make. The ability to effortlessly capture this information, analyze it, and monitor trends over time gives lenders a needed advantage in a very competitive auto lending environment.
Loan origination is a prime area where analytics is applied to improve efficiency. The types of analyses available out of the box include:
- Evaluate individual underwriter weekly turnaround, measuring the average time between application creation and the first major underwriting decision, which could be an approval, conditional approval, or decline;
- Monitor the number of times decision rules have been waived, and by whom in order to capture the deal;
- Report auto-decline and auto-approval ratios based on origination or credit scores.
- Summarize weekly approval, book-to-look, and capture ratios; and
- Compare month-to-date metrics with previous month-to-date metrics to track performance improvements.
Variations in underwriter turnarounds could be closely correlated with experience, complexity of applications, or decision rules for queue assignments that could be rectified through training or modification to rules. An increase in capture ratios may be a factor of overrides or exceptions that increase portfolio risk. Modifications to credit policies may facilitate a greater number of auto-approvals that increase capture rates and reduce average loan processing costs. Regular reporting and comparison of metrics is the surest way to monitor efficiency gains.
Auto Lending Portfolio Profitability
In a dynamic auto market, influenced daily by economics, politics, disruptive technologies, and demographic trends, lenders need to pay close attention to subtle trends and fine-tune credit policies to maximize profitability. Analytics enables detailed reporting on lending decisions that impact portfolio profitability.
A very small sample of the variety of analyses available out of the box:
- Report portfolio averages such as APR, term, payment-to-income, debt-to-income, loan-to-value; cash down, and amount financed, by the day, week, month, or year; and
- Monitor vehicle trends by reporting metrics such as booked count by vehicle make, vehicle make by average mileage, average term and LTV by vehicle age.
Results of the analyses allow lenders to monitor these metrics over time to determine how past credit policies affect current portfolio profitability. With this insight, you can continuously fine-tune credit policies to increase capture ratios, reduce risk, and improve overall portfolio profitability.
Reports Summarize Performance
We’ve given just a handful of examples above, but the variations and applicability of analytics and real-time reporting touch every facet of the lending process. Using configuration menus, business users can easily create reports that show analyses relevant to their specific areas of focus. There’s no need to wait for a technical expert to execute the analysis and create the report. Analyses and reports can be scheduled, making the process steady and consistent.
The power and value of analytics lie in the ability to summarize a lender historical performance by:
- Day, week, month, quarter, and year;
- Credit score;
- Vehicle make;
- Dealer; and/or
Lenders may apply any other relevant metrics as well, continuously improving efficiency and profitability. That’s a solid way to improve auto lending efficiency.
defi SOLUTIONS‘ loan origination and analytics software experts want to help you improve your auto lending efficiency. We are professional lending process problem solvers. Take the first step toward improved efficiency and profitability by contacting our team today or registering for a demo of defi LOS.
Get in touch with us today and get a demo!