End to end lending process


The defi Team defi INSIGHT

Critical Points in the End-To-End Lending Process and How It’s Changing

Consumers often choose to lease over buying a vehicle outright due in part to lower monthly payments. However, toward the end of an auto lease, a decision must be made as to whether to buy the leased vehicle or lease a new one. When a consumer chooses a lease buyout, this often involves end-to-end lending. Buyouts of leases are often financed for several reasons, and can even be done prior to the end of the lease.Often times the leasing company will offer to finance the vehicle. This may be the most reasonable option. The lender will know the consumer from their lease relationship and the consumer could get better interest rates and terms from a company that can provide them with an end-to-end solution. For companies whose business is end-to-end lending, buyouts offer an opportunity that enables them to continue a profitable relationship. 

Auto Leases: Perspectives on End-To-End Lending Buyouts

Finance companies would do well to add leased vehicle buyouts to their portfolios as they add another niche market to their end-to-end lending. Buyouts of leases are essentially used car purchases, though the new owner has a better idea about the state of the vehicle, as they’ve driven and serviced it for the past few years. However, lease buyouts are only one of the options available to lessees at the end of their lease.

Depending on what’s in the lease contract, options may include: 

  • Arranging for the vehicle to be purchased by a third party. 
  • Lengthening the lease under the same terms in the original contract. 
  • Paying any amounts due or collecting any excess when the vehicle is returned. 
  • Purchasing the vehicle from the lessor outright.
  • Re-leasing the vehicle for an additional period of time on different terms. 
  • Repairing damage to the vehicle prior to returning it. 

However, there are pros and cons for both consumers and lenders that finance an end-to-end lending buyout.

The Pros and Cons of End-to-End Lending Buyouts

Several factors contribute to consumer lease buyouts. These may include expensive repairs due to greater than anticipated wear and tear, a market value that’s much more than the residual value, penalties from exceeding mileage limits, or simply just liking the vehicle. 

For banks, credit unions, consumer lenders, finance companies, and others involved in end-to-end lending, buyouts they finance are very much like any other auto loans. A lease buyout is based on the amount borrowed, along with an agreed upon annual percentage rate (APR) and other loan terms. 

When it comes to end-to-end lending, buyouts of leases offer advantages to both borrowers and lenders. 

Pros of an End-To-End Lending Buyout 

Though there are advantages for both the consumer and lender during loan buyouts, sometimes the deal works better for one of the parties. 

Some of the pros of buying out leases include: 

  • Allows consumers to take advantage of beneficial auto financing arrangements, such as low rates or flexible terms. For lenders, it presents another opportunity to provide their products to consumers.
  • Enables consumers to sell the vehicle and use funds to purchase another one—these lump sums may also be used to finance and upgrade to a newer vehicle. 
  • Ends auto payments for consumers, freeing up money that can be budgeted elsewhere. 
  • If the current market value is higher than its residual value, it means the owner has equity in the vehicle, so they will gain by buying it. This also gives the lender greater collateral, decreasing the chance of default. 
  • Outright ownership offers advantages to consumers, nullifying fees for excess mileage or restrictions on modifying the vehicle.

In certain cases, the disadvantages of lease buyouts for consumers can actually benefit lenders. 

Cons of End-To-End Lending Buyouts

Like with other used cars financed through end-to-end lending, buyouts of leased vehicles present a greater risk for lenders.  

Some of the cons of buying out leases include:

  • As a leased vehicle is considered used, purchasing it typically means higher interest rates than for a loan on a new automobile. Though higher interest rates benefit lenders, older pre-owned vehicles often lose much of their value, so they’re less protected against default.
  • If the current market value is less than what’s owed, the consumer will be borrowing more than the vehicle is worth, especially without a down payment. Should the borrower default, the lender might lose money. 
  • Lease buyout loans often have higher interest rates due to the greater risk to the lender. 
  • If a borrower fails to care for the vehicle properly, they may be forced to make major repairs at lease end and the asset will devalue more quickly, reducing the value of it as collateral. 
  • It may actually increase a consumer’s monthly payments if an auto loan is used to purchase the leased vehicle. 

Making an End-To-End Lending Buyout of a Lease Easier

When it comes to end-to-end lending, buyouts of leases aren’t always a straightforward matter. An experienced third party can offer numerous advantages for both borrowers and lenders while providing valuable services. As a business process outsourcing (BPO) provider, defi SOLUTIONS has considerable experience with lease buyouts and many other complimentary services. 

With its experienced leasing professionals, defi streamlines processes to:

  • Allow lenders to focus on their core business. 
  • Improve customer retention with proven strategies. 
  • Provide efficient transitioning as auto lessees become borrowers. 
  • Reduce costs through automating and streamlining processes. 
  • Remarketing services that ensure the best resale price for leased vehicles when returned. 

These days, borrowers expect their lenders to provide them with financing services efficiently, quickly, and in a way that best suits their needs. Consumer experience is a key factor in retaining customers, and defi has expert personnel capable of handling inbound customer care to manage lender portfolios, along with complete back-office support for both leases and loans. And on those rare occasions when relationships don’t work out between borrowers and lenders, defi also provides professional bankruptcy, collections, default management, recovery, and repossession services.

Getting Started

defi SOLUTIONS offers a total solution for a lender’s complete loan or lease lifecycle. Partnering with captives, banks, credit unions, and finance companies, defi’s market-leading solution helps lenders exceed borrower expectations. From digital engagement through the complete lending process, defi sets new standards for flexibility, configurability, and scalability in originations, servicing (by your experts or ours), and end-to-end lending buyouts. defi SOLUTIONS has the backing of Warburg Pincus, Bain Capital Ventures, and Fiserv. For more information, please visit www.defisolutions.com.

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