HOW TO AUTOMATE AN END-TO-END LOAN LIFECYCLE FOR AUTO LENDERS

The defi Team Automation, Business Process Outsourcing, defi INSIGHT, Digitalization, Simplifying Processes, Technology

At each stage of an auto loan’s lifecycle, employing automation helps the process become more efficient, increases accuracy, and adds value. Automating auto loans can cut approval times from hours to minutes. It enables lenders to increase loan volume without increasing their labor force, streamlining their processes while improving the accuracy of the data they gather. Moving away from manual processing to automation during an end-to-end loan lifecycle helps everyone involved, including the borrower, lender, and auto dealer.  

Automotive Lending: End-to-End Loan Lifecycle Automation

Traditionally, lenders had been forced to utilize different systems and providers for origination and servicing. And, until recently, there was no one provider able to deliver an end-to-end solution that combines originations through servicing with options for business process outsourcing. Fintech and technology enabled services utilized throughout an end-to-end loan’s lifecycle gives both lenders and borrowers more flexibility in managing loans.

Being able to offer flexible payment solutions for borrowers also helps improve customer satisfaction. 

Digital solutions help borrowers connect to lenders and help lenders maintain contact, demographic and financial information about their customers, along with stipulations that supports the loan decision and details about the terms and conditions of the loan. This enables categorizing and marketing to borrowers to provide additional products and services. Using the same fintech system throughout an end-to-end loan lifecycle allows lenders to concentrate on providing their customers with better services and a consistent experience. 

Automating Auto Loan Origination

Five basic components of an automated loan origination framework include:

  1. Digital applications accepted anytime from anywhere.
  2. Document collection of stipulations needed from borrower’s before auto loan approval, including proof of address and income, insurance information, and details about the purchased vehicle.   
  3. Integrations through APIs to third-parties that provide credit scores, alternative data, vehicle valuations, fraud protection, and other data and information needed to determine borrower qualification.
  4. Automated decisioning that can provide responses to borrowers in seconds.
  5. Transitioning deal information and collected documents directly into the loan processing system once the deal is funded.

Once uploaded into a fintech framework, the paperwork can then be utilized to offer other services, such as extended vehicular warranties or insurance. 

Automating Auto Loan Servicing

After a loan has been approved and the funds dispersed, lenders monitor borrowers’ payments and give customers the best possible service. Using fintech throughout an end-to-end loan lifecycle makes this process simpler.

Automating servicing of an end-to-end loan lifecycle for auto lenders entails: 

  • Alerting and reminding borrowers of imminent or past due payments to avoid negative updates to credit reports and potentially bad debts carried by creditors. 
  • Digitizing statements nixes the expense of mailing paper ones out, costing lenders less while also making information more readily available to borrowers online.
  • Managing accounts to keep borrower documents and details automatically updated. 
  • Presenting borrowers with better loan terms via AI-enabled fintech when automatically updated credit scores merit these. 
  • Rolling over payments, adjusting fees, or otherwise rescheduling payments when necessary. 
  • Tracking interactions with borrowers makes it easier for lenders to answer questions about payment history and provide better customer service.  
  • Updating data automatically from credit bureaus to ensure a lender has the most recent credit information on their customers to facilitate any possible restructuring. 

Automating Auto Loan Restructuring

The COVID-19 pandemic accelerated the use of technology by lenders in the auto industry, as consumers increasingly found their ability to repay loans hindered. Yet lenders were already increasing customer focus and engagement by driving the use of fintech to transform their operations. So not only did expanding their digital capabilities allow auto finance companies to react quickly to the effects of the pandemic, it also made their lending strategies more customer-centric.

By promoting collaborative interactions through automation, auto lenders can: 

  • Allows lenders to engage customers earlier with empathy by presenting solutions rather than penalties. 
  • Frees agents involved in collection activities, allowing them to interact with customers in a more nuanced fashion. 
  • Encourage borrowers to return for additional loans or leases. 
  • Provide delinquent borrowers with personalized messaging that focuses on restructuring an auto loan instead of just sending a torrent of automated reminders about late payments.
  • Provides cost savings for lenders while improving their ability to deal with fluctuations in collections volume.

Predictive analytics allows auto lenders to identify and support those customers at risk of becoming delinquent. When problematic auto loans are targeted early, auto finance companies can be more flexible, offering restructured loans, extending terms, and offering trade-ins to prevent default. 

Automating to Mitigate Auto Loan Collections

No creditor wants to resort to collections to be compensated for a loan they’ve approved. Yet sometimes, this is inevitable. When automated notifications and alerts fail to resolve a customer’s late payment, and when customer engagement concerning alternatives is ignored, there’s not much choice left for a creditor. However, automation offers powerful tools to prevent collections from being necessary in the first place. 

AI technology offers a means to predict and mitigate losses from defaults. It also allows creditors to analyze borrower data to predict the likelihood of loan defaults by such indicators as geographic location or age of the borrower. Being able to predict which accounts are most likely to default enables creditors to pay special attention to these accounts. These predictive models make the most of borrower data to streamline the collections process.

Removing Silos With End-to-End Loan Lifecycle Automation 

Generally, each aspect of an auto loan and lending has traditionally been controlled by a separate provider entity. One vendor would control aspects of loan origination. Another would deal with servicing. And if the lender needs to outsource some or all of their servicing, collection, or remarketing, yet another vendor might come into play. Technology in the lending industry is streamlining lenders’ services and allowing them to focus on  customer experience.  

David Call, Chief Financial Officer (CFO) of defi SOLUTIONS acknowledges this: 

“Experiences don’t lend themselves to silos. Even if our software performs a task well, if it does it in a way that’s frustrating, or challenging, or clunky—and all enterprise software has been all of those things at some point in the past—then, ultimately, the client’s decision to renew or buy more is impacted. It’s largely a function of the user experience they’ve had. It’s about their emotional tie and how they feel about what they’ve already experienced. It’s about the end-to-end experience.” 

Silos in the lending process can lead to:

  • A culture where one department blames another when something goes awry. 
  • Fragmented subcultures developing within various aspects of the loan process, leading to a lack of coordination and an overall purpose. 
  • Lack of cooperation leads to each entity within the lending process focusing only on their capacity, leading to solutions that aren’t optimal for borrowers. 

The end-to-end loan lifecycle should offer complete solutions for borrowers. Finance companies must offer quick, easy-to-use service and value to their customers while ensuring they’re seen as trustworthy partners throughout the loan process. This includes supplying software, hardware, systems and vendors, while being flexible enough to involve other entities in the process. It involves continuous communication between lenders and borrowers to create the best customer experience and relationship possible.

Getting Started

defi SOLUTIONS provides services for lenders through each step of the end-to-end loan lifecycle, including configurable loan origination systems, loan management and servicing, analytics and reporting, and a wide range of technology-enabled BPO services. If you’re struggling with the limitations of your current lending technology solutions, take the first step in realizing the benefits of modern technology. Contact our team today or register for a demo.

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