Many lenders, specifically those solely focused on auto lending, are considering loan outsourcing to improve operational efficiency and simultaneously reduce costs. In the past year, they’ve experienced increased calls regarding loan deferments and a growing number of delinquencies and defaults. A maze of federal and state regulations that govern some of the more complex aspects of collections presents added challenges. These circumstances have made it difficult for smaller lenders to find experienced staff and improve process efficiency to handle the demands.
If you face similar challenges, you may be considering loan outsourcing for some or all of your lease and loan servicing requirements. Based on more than thirty years of providing these services for hundreds of lenders nationwide, we’re confident you can avoid loan outsourcing mistakes by following these four planning tips.
| 4 Planning Tips to Avoid Loan Outsourcing Mistakes | |
|---|---|
| 1) Have Quantifiable Reasons for Outsourcing | Ask questions like these to avoid loan outsourcing mistakes: ➨ Are you looking for cost savings? ➨ Are you looking to improve efficiency? ➨ Are you hoping to provide a higher quality service? ➨ Do you have metrics to measure success? |
| 2) Know What Areas You Want to Outsource | Decide which services you want to outsource: Call center, payment management, collections, delinquencies, defaults, title management, repossession, or remarketing. Make a prioritized list and use that to start the conversation. Ask prospective providers to explain how they handle those specific areas. |
| 3) Stay Onshore | Work with a provider whose staff and resources are based in the U.S.: Their knowledge of lending practices, compliance requirements, and ability to deliver outstanding service will help you maintain a positive reputation. |
| 4) Look for a Proven Provider | Choose a provider that specializes in auto lease and loan servicing: Instead of covering a wide range of business activities, a specialized provider will focus on your needs, invest in new technology to improve customer service and implement industry best practices. |
#1: Have Concrete, Quantifiable Reasons for Outsourcing
Your instinct may be telling you that outsourcing is the direction to take, but you’ll be much better prepared to make the move if you can identify your reasons for outsourcing or the specific goals you want to achieve. Are you looking for cost savings? If so, what is your target percentage of savings? Are you looking to improve efficiency? Do you have current metrics to compare against and measure improvement? Are you hoping to provide a higher quality service? If so, how would you quantifiably characterize that higher quality of service? Asking questions like these will help avoid loan outsourcing mistakes that stem from unrealistic expectations.
#2: Know What Areas You Want to Outsource
Loan outsourcing for lease and loan servicing covers a continuum of capabilities—call center, payment management, collections, delinquencies, defaults, title management, repossession, and remarketing are some of the key areas. If you intend to outsource all of your lease and loan servicing, that can simplify the move, but there are usually a few areas that are high-priority for most lenders in our experience.
It’s well worth the time to identify which of your servicing areas you want to focus on. Create a prioritized list and use that as a starting point for discussion with potential providers. It will allow prospective loan outsourcing providers to explain how they handle those areas. And as you discuss your requirements, ask detailed questions regarding how each of those services is provided.
- What is the experience level of the staff who provide a specific service?
- What systems are in place to manage the service?
- To what degree is process automation used?
- Do you maintain metrics regarding the services provided?
- How are federal and state compliance requirements incorporated into the process?
- How do you manage fluctuations resulting from seasonal or economic cycles?
You’ll also want to ask the loan outsourcing provider if any of their services are truly unique or innovative in how they are delivered. For example, do they have multilingual call center staff? What risk mitigation strategies do they have in place? In how many states do they maintain collection licenses? Do they employ any advanced analytics to help optimize operations? Capabilities and innovations like these can not only deliver services more efficiently and provide a better quality of service, they can simultaneously help enhance your reputation as a lender.
#3: Stay Onshore
You’ve undoubtedly heard about the reputation of loan outsourcing services located offshore. Of course, the most significant benefit of offshore outsourcing is significantly lower operating costs. You may have received services provided by an offshore provider, and you’re likely to have experienced a less-than-satisfactory level of service.
Considering the complexity of auto lease and loan servicing, you’ll want to work with a provider whose staff and resources are US-based. They’ll understand the details and nuances of lending practices, be well-versed in compliance requirements, and be much better prepared and positioned to deliver a level of service that positively reflects on your reputation.
#4: Look for a Provider With Proven Industry Success
Loan outsourcing covers a vast area of services. You can find outsourcing services for every core aspect of a business—accounting, human resources, legal, customer support, IT, procurement, and finance. While some loan outsourcing providers may be able to handle some aspects of your servicing, it’s doubtful they can handle all aspects.
To significantly increase the success of outsourcing, look for a provider specializing in auto lease and loan servicing. They’ll focus exclusively on the services you need rather than covering a wide range of business activities. In addition, they can continually invest in systems and technology to improve services and implement industry best practices.
Ask prospective providers for a reference list of clients they serve and follow up with a call to one or more of the references to learn about their experience in transitioning to outsourcing. Solid references are one of the best indications that you’ll avoid loan outsourcing mistakes when you work with a provider with proven industry success.
Good Planning Avoids Loan Outsourcing Mistakes
Of course, there are many other plans and activities that need to be well executed to avoid loan outsourcing mistakes. Here, we’ve focused on some of the key planning steps to help ensure success. Time invested in identifying your reasons for outsourcing and prioritizing the areas of lease and loan servicing having the greatest need will facilitate a focused discussion with prospective providers and help accelerate the implementation process.
Of course, once you embark on your outsourcing strategy, many steps along the way require proper preparation and timely execution.
Getting Started
defi SOLUTIONS is redefining loan outsourcing with end-to-end software solutions that enable lenders to automate, streamline, and deliver. Borrowers want a quick turnaround on their loan applications, and lenders want quick decisions that satisfy borrowers and hold up under scrutiny. With defi MANAGED SERVICING, lenders can improve operations and processes related to auto loan servicing, leases, and the disposition of leased vehicles, cutting expenses through automation and outsourcing services. For more information on what to look for when considering loan servicing companies and how we can help, Contact our team today and learn how our cloud-based loan origination products can transform your business.
