In-house processing was once one of the only effective options for banks, credit unions, and fincos to manage their lending processes from end-to-end. However, this has changed. As lenders look for ways to reduce operational costs and improve the efficiency of their auto loan servicing processes, some are turning to outsourcing as a better solution.
There are a number of reasons why auto loan servicing outsourcing can be more cost-effective than in-house processing, for small businesses, medium business, or large operations as well. Here’s why you should consider outsourcing your loan servicing process to providers with experience managing auto loans.
What Do Lenders Get from Outsourced Auto Loan Servicing?
Outsourcing auto loan servicing means hiring a third-party provider to manage loan and lease lifecycles. This includes basic account administration tasks such as payment processing and ledger maintenance. Providers’ systems can also handle collateral and default management, workflow routing, rule-based scripts, automated services, end-of-term leases (leading up to the vehicle remarketing process), and even offer customer service options. It’s a fully integrated system for managing the entire lifecycle of an auto loan or lease.
Why do some lenders choose to outsource this process instead of handling each of these tasks in-house? One of the main reasons is because outsourcing saves costs on staffing, labor, software, hardware, and operational inefficiencies. The more cost-effective and efficient your auto loan servicing process is, the more funds, resources, and time you’ll have to reinvest in the business or focus on your core services.
The Cost of Outsourcing vs. In-House Processing
To understand how outsourced auto loan servicing stacks up against in-house processing, it’s helpful to know exactly which services are typically the most cost-effective. This varies depending on your own in-house auto loan servicing costs as well as which provider you choose to hire. However, generally speaking, here are some of the cost savings considerations associated with outsourcing and in-house processing:
Outsourcing Cost Savings
|Lenders purchase less hardware and software licenses to manage auto loans.|
|Third-party providers bear the brunt of costs related to hardware maintenance, depreciation, and software patches.|
|There’s no need to hire an in-house programmer to create proprietary auto loan servicing software.|
|Lenders spend less time and resources hiring and training loan servicing staff.|
|Lenders don’t have to hire more staff when they take on a higher volume of auto loans.|
|There are less wasted resources when loan volumes are low.|
|Automated loan servicing processes cost less to operate compared to manual processes.|
|The entire auto loan servicing system is more efficient and eliminates information silos, making it easy for borrowers to schedule and make payments on time.|
|Customer service representatives spend less time answering simple inquiries, as customers can get answers using the self-service portals the loan servicing provider offers.|
|Account closeout is a fast and efficient process, meaning that lenders can quickly change titles or liquidate the vehicle before incurring steep storage costs.|
|Greater efficiency and streamlined workflows allow lenders to run a lean business with lower overhead costs in general.|
In-House Processing Cost Savings
|Lenders decide how much to spend on hardware, software, and staff to stay under budget.|
|If lenders already have sufficient in-house loan servicing staff and programmers, maintaining this staff can be as cost-effective as outsourcing this process.|
|If lenders typically have the same loan volumes year after year and rarely scale up or down, in-house processing can be cost-effective.|
|Lenders with end-to-end workflows that are already as efficient as possible have low overhead.|
Why You Should Consider Outsourcing Loan Servicing
Ultimately, both in-house processing and outsourced auto loan servicing can be viable and cost-effective options for lenders. However, in-house processing costs can fluctuate depending on factors like loan volume, budget, staff turnover rates, and hardware and software maintenance. This is one of the reasons why many lenders find that outsourcing this process is more cost-effective compared to in-house processing.
The cost of an in-house auto loan servicing process could be manageable one year, and far higher than anticipated the next. Moreover, in the wake of an economic downturn, lenders could experience lower or higher loan volumes than usual, meaning they will either have to downsize or hire more staff—a potentially costly process.
Outsourcing loan servicing removes some of this uncertainty from the overall cost. Providers typically charge an agreed-upon rate that is predictable from month to month. This often makes it easier for lenders to balance their loan servicing budgets, as they may not have to factor in extra costs like unexpected hardware maintenance or sudden staff shortages.
However, beyond being cost-effective, outsourcing the loan servicing process also leads to greater efficiency. With these services, lenders can provide more convenient and comprehensive services to their borrowers, which in turn could lead to higher retention rates and satisfaction. It’s a potential win-win for lenders and borrowers alike.
defi SOLUTIONS provides end-to-end auto loan servicing solutions for banks, credit unions, and fincos. Our streamlined, efficient loan servicing software and customer care services effectively manage auto loans while keeping overhead costs as low as possible. If you’re interested in outsourcing your loan servicing process, contact our team today or register for a demo.