WHY LOAN PORTFOLIO ANALYTICS ARE SO VALUABLE

If you’ve been in the auto lending business for any length of time, you’ve captured or created volumes of applicant, borrower, process, and deal information. That data has value any time you provide customer service, receive a payment, or need to contact a borrower regarding loan status. It’s even more valuable when used with loan portfolio analytics, which are the key to unlocking your lending portfolio’s full potential.

How important are analytics? Today, every data-intensive industry is discovering its value. Analytics are top-of-mind in fintech. According to a recent survey of 500 fintech executives by AvidXchange, analytics is being used to inform decision-making (64%), identify fraud (59%), catch and reduce errors (56%), pinpoint opportunities to grow the business (54%), and find money-saving opportunities (49%). 

Analytics can be applied to nearly every aspect of the auto loan cycle—from origination through servicing. They can be used to monitor the efficiency of your loan origination process with the goal of continuous process improvement. For now, we’ll focus on auto loan portfolio analytics. The table below identifies several benefits of auto loan portfolio analytics:

Benefits of Implementing Loan Portfolio Analytics
Risk Mitigation	Early detection of high-risk loans through predictive analytics enables proactive measures to mitigate potential losses.
Portfolio Diversification	Analysis of customer demographics and behavior supports strategic portfolio diversification, reducing concentration risk.
Fraud Detection and Prevention	Analytics can identify unusual patterns or behaviors indicative of fraud, contributing to a more secure lending environment.
Optimized Loan Pricing	Data-driven insights enable the establishment of optimal interest rates and terms, ensuring competitive yet profitable loan pricing.
Enhanced Customer Segmentation	Tailored marketing and product offerings based on analytics improve customer satisfaction and attract a diverse customer base.
Efficient Resource Allocation	Allocation of resources based on an analysis of portfolio performance, staff optimization, and budget maximizes efficiency.

Without Analytics You’re Just Guessing

If you’re not currently using loan portfolio analytics, your lending strategy is probably driven by many years of experience, some guesswork, and perhaps more than a bit of luck. Alternatively, you might be doing some portfolio analysis using Excel, but in that case you’re downloading portfolio data from your lending system and working within the limits of Excel’s data filtering and analytic functions. Over time, the hassle of analyzing your loan portfolio this way makes it less likely that you’ll conduct frequent and detailed analyses.

Analyze to Understand Portfolio Performance

Well-designed analytical tools, integrated with loan origination and servicing software natively, give lenders a near-limitless ability to analyze loan portfolio macro-performance, micro-performance, and everything in between. Business users can easily define, build, and configure self-service reports to explore, uncover, discover, and confirm trends. A small sampling of how analytics inform lenders on the current state of their loan portfolios:

• Compare delinquency rates to identify trends and determine which borrower attributes or credit policies contribute to delinquencies
• Determine the distribution of loans in the past 12 months by age, loan type, dealer, make, model, or any other combination of attributes that provide insight into various portfolio segments
• Learn which loan officers, senior credit analysts, and underwriters demonstrate the best judgment with underwriting overrides
• Find the percentage of low-side override loans that have defaulted in the past year
• Uncover attributes of applicants who purchased the latest high-tech models
• Note borrowers who are subject to the Servicemembers Civil Relief Act (SCRA) guidelines
• Be advised when subprime loan interest rates may violate state usury laws
• Learn which originating dealers had the highest/lowest delinquency rates

These analyses help lenders determine how well their loan portfolios are performing and identify areas that need improvement. Without that data-driven analytical insight, attempts to improve portfolio performance will miss the mark. When you identify your portfolio’s problems and understand their root causes, you’ll know where to focus your efforts.

Analyze to Optimize  

Getting the most out of your loan portfolio requires a delicate balancing act with many interrelated risks. Analytics gives you the ability to assess the influence of those factors on your portfolio and continually make adjustments (within regulatory guidelines) to optimize performance. Your analysis may indicate that credit policies established 12 months ago for a specific portfolio segment are doing fine and delivering the expected results. In other areas, economic factors may prompt you to reevaluate your policies. Some examples of how you can optimize portfolio performance might be:

• Modify underwriting criteria to be more liberal in granting credit by lowering the credit score threshold from 700 to 670 without accepting additional risk
• No longer accept applications from a dealer whose loans show an increasing number of delinquencies over the past 12 months
• Adjust terms for millennials who carry student loan debt in order to capture more of this segment
• Contract with alternative credit data services to improve decisioning and reduce risk in order to reach previously ignored market segments
• Establish more competitive pricing in response to a decline in deals in a geographic area that was historically strong.

If portfolio optimization has been managed primarily as an art, based on your deep lending experience, analytics now brings the science to the practice. Combined, these two should give you greater insight and confidence in making adjustments to credit policies and lending practices.

Learn how configuration is the quickest and easiest way to make changes and modifications to your lending processes and credit policies.

Loan Portfolio Analytics Should Have These Capabilities

Smart lenders use analytics for an advantage over competitors who still think portfolio management is only an art. When you’re evaluating the analytical capabilities of a loan software vendor, consider these criteria:

• Natively integrated with loan origination and servicing software—not bolted-on
• Doesn’t require technical, programming, or data-scientist skills to use
• Allows business users to easily define, build, and configure self-service reports
• Provides high-level analyses and the ability to drill down into portfolio segments (and even individual deals) to uncover opportunities
• Configurable, so that individual users get the information they need based on their user profiles

Loan portfolio analytics are powerful. In an increasingly competitive auto lending market, they are crucial to remaining viable and profitable.