auto loan servicing


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auto loan servicing

In-house processing was once one of the few effective options for banks, credit unions, and other lenders to manage their end-to-end lending processes. However, the lending industry has changed, and outsourcing has come to be seen by many lenders as a better solution. For auto loan servicing, outsourced processes offer a means to reduce operational costs and improve efficiency.

There are numerous reasons why auto loan servicing outsourcing is often more cost-effective than in-house processing. And it’s not the size that matters, as outsourcing can work for small, medium, or large operations. Here are a few reasons lenders should consider outsourcing their end-to-end auto loan servicing processes to experienced providers.

Benefits of Auto Loan Servicing Outsourcing
Cost Savings Outsourcing auto loan servicing can be more cost-effective than
investing in on-premise software and
in-house staff to perform the same tasks.
Expertise Auto loan servicing companies specialize in loan servicing and have
expertise and experience managing
loan portfolios.
Efficiency Outsourcing streamlines the loan servicing process by
automating routine tasks like payment processing and account maintenance.
Customer Service Auto loan servicing companies have specialized call centers and
customer service teams that can often handle borrower inquiries and concerns more efficiently than
in-house staff.
Flexibility Outsourcing can provide flexibility in loan servicing, allowing
lenders to scale their operations up or down as needed.

What Do Lenders Get from Outsourced Auto Loan Servicing? 

Outsourcing auto loan servicing involves hiring a third-party partner to manage loans and leases throughout their 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 customer service options. Outsourcing essentially allows lenders to offer their customers a fully integrated system for managing the entire lifecycle of an auto loan or lease.

The reasons many lenders choose to outsource this process instead of handling each of these tasks in house are myriad. One prime reason involves cost savings. An outsourcing relationship often saves a lender time and money by lowering staffing, software, and hardware expenditures and making operational tasks more efficient. The more cost-effective and efficient an auto loan servicing process, the more funds, resources, and time lenders will have to reinvest into their businesses and focus on core services.

The Cost of Outsourcing vs. In-House Processing

To understand how outsourced auto loan servicing compares to in-house processing, knowing which services are typically
the most cost-effective to outsource is helpful. However, this varies depending on a lender’s in-house auto loan servicing costs and the outsourcing type. Nevertheless, there are some general cost savings associated with outsourcing and in-house processing that lenders should consider.

Outsourcing Cost Savings

Lenders purchase fewer hardware and software licenses to manage auto loans.
Third-party providers bear the brunt of hardware maintenance, depreciation, and software patch costs.
Hiring an in-house development team to create and maintain proprietary
auto loan servicing software
is unnecessary.
Lenders spend less time and resources hiring and training loan servicing staff.
Lenders can easily scale without having to hire more staff when they take on a higher volume of auto
There are fewer wasted resources when loan volumes are low.
Automated loan servicing processes cost less to operate compared to manual processes.
The auto loan servicing system is more efficient and eliminates information silos, making it easy for
borrowers to schedule and make timely payments.
Customer service representatives spend less time answering simple inquiries, as customers can get
answers using self-service portals the loan servicing provider offers.
Account closeout is a fast and efficient process, meaning lenders can quickly update titles or liquidate
the vehicle before incurring steep storage costs.
Greater efficiency and streamlined workflows allow lenders to run lean businesses with lower overhead

In-House Processing Cost Savings

Lenders are more hands-on when it comes to spending on hardware, software, and staff.
If lenders already have sufficient in-house loan servicing staff and developers, maintaining this staff
can be as cost-effective as outsourcing.
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 already as efficient as possible have low overhead.

Why You Should Consider Outsourcing Auto Loan Servicing 

Ultimately, in-house processing and outsourced auto loan servicing can be viable and cost-effective options. However, in-house processing costs will fluctuate depending on loan volume, budget, staff turnover rates, and costs associated with maintaining hardware and software, as the lending business can be volatile, with many ups and downs.

For example, the cost of an in-house auto loan servicing process may be manageable one year and then far higher than anticipated the next. Moreover, during economic downturns, lenders tend to experience considerable fluctuation in loan volumes. This means lenders will either need to downsize or hire more staff, which can be costly.

Outsourcing loan servicing removes many of these cost uncertainties. Outsourcing providers typically charge an agreed-upon monthly rate that’s predictable. This makes it easier for lenders to balance their loan servicing budgets, as they’re less likely to face unexpected costs, such as hardware maintenance or sudden staff shortages.

Beyond being cost-effective, outsourcing the auto loan servicing process also results in greater efficiency. With these outsourced services, lenders can position themselves to provide more convenient, comprehensive, and borrower self-services to their customers. Borrowers, in turn, are more likely to be satisfied, leading to higher retention rates. All in all, outsourcing offers benefits to both lenders and borrowers.

Lenders can take their auto loan servicing to the next level with defi MANAGED SERVICING, which offers a modern client experience with a single hub, digital interactions, and intelligent virtual assistants.

With conversational artificial intelligence (AI) and Contact Center as a Service, defi MANAGED SERVICING improves operations and processes related to auto loan servicing, leases, and the disposition of leased vehicles, reducing budgetary expenses and improving customer satisfaction.

Lenders can opt for end-to-end auto loan servicing or à la carte services, including loan and lease customer service, lease maturity management, remarketing, and backup servicing.

Getting Started

defi SOLUTIONS is redefining loan origination 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 understanding disparate impact in lending and how we can help, Contact our team today and learn how our cloud-based loan origination products can transform your business.

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