The defi Team defi INSIGHT, Servicing Systems

Fintech is being used to automate many processes within the financial services industry, with the auto lending sector being no exception. These automated solutions are used throughout the end-to-end auto loan process, from originations to servicing to the final payment, with auto lenders increasingly using technologies that involve artificial intelligence (AI). Auto lending companies, in particular, benefit from AI when it’s paired with machine learning algorithms, which enable lenders to provide loans to more people, while also increasing transparency and improving regulatory compliance.

There are many examples where AI can help support a better consumer experience, along with more nuanced loan origination and servicing processes. This includes using AI to reduce risk exposure, along with the use of AI-enabled chatbots that help identify and resolve issues for customers without the need for human interference. Though it’s possible for auto lenders to glean knowledge through statistical methods without the use of machine learning algorithms and AI, auto lending can use these technologies to make this process much more efficient. For example, using AI in auto lending can help lenders identify patterns in data that help them establish a potential borrower’s capacity to repay a loan, which is the very foundation of all lending.

Using AI: Auto Lending Simplified

Filling out an application for an auto loan is a time-consuming process, during which applicants input details concerning the purchased vehicle, its price, and the loan amount needed, along with an applicant’s relevant background information and credit history. Using AI in auto lending speeds the originations process without increasing a lender’s risk and, in many cases, can lessen this risk by identifying mistakes and potential fraud within applications. Quick turnaround times for decisioning are critical for auto lenders, as customers have many loan providers from which to choose. When it comes to auto lending, AI risk models can help lenders approve or decline a loan more quickly, while also giving auto lenders numerous other advantages. 

Benefits of AI in Auto Lending 

Because of the technology’s capabilities, the auto finance industry can benefit significantly from the use of AI. Auto lending companies can use AI with supporting technologies to help structure loans for customers and make their lending processes more efficient. The advance of AI technology for auto lending has also made it increasingly cost-effective, especially when it’s integrated with cloud-based lending platforms run by software-as-a-service (SaaS) providers.

The use of AI in auto lending allows lenders to:

  • Automate and simplify the process of data collection and analysis.  
  • Consider the creditworthiness of applications with traditional and alternative credit data to assess risk.
  • Employ historical data in conjunction with analytics software to evaluate customer sentiment so as to resolve issues more quickly. 
  • Evaluate applications to identify possibly dishonest or distorted information.
  • Help lenders properly maintain regulatory compliance by avoiding application of unintentionally discriminatory policies and procedures. 
  • Identify bottlenecks and other inefficiencies within an auto lender’s processes and systems by surveying customers.
  • Perform and audit analyses based on age, ethnicity, gender, and race. 

Using AI enables auto lenders to employ methods that help reduce their risk. Working with other technologies used to digitize the sector, linking AI to auto lending software supports a lender’s ability to evaluate data both accurately and rapidly.

AI Auto Lending & Data Analytics

Using AI with auto lending analytics applications allows lenders to evaluate a wide array of data to provide useful insights. This includes data gathered throughout the origination process and additional data from customer interactions during the loan servicing phase. AI offers lenders a means by which to improve service to their customers and make their operations more efficient. Additionally, the more data gathered from borrowers, the more quickly fraud and other risks can be detected and dealt with. With data analytics software used in conjunction with AI, auto lending companies can then concentrate on their core capabilities.

Data analytics combined with AI can allow lenders to:

  • Find correlations that help predict risk between factors like credit history, credit score, occupation, and the loan-to-value ratio of the vehicle being purchased when determining creditworthiness. 
  • Assess factors that could affect a borrower’s ability to repay a loan when structuring it.
  • Identify and optimize which loan structures offer the greatest profit. 
  • Recognize signs when a subprime borrower may become delinquent by tracking their payment history and thus helping avoid potential delinquent payments.  
  • Grow business opportunities. 
  • Identify markets in which to expand through the use of statistical modeling and the use of aggregated datasets in order to grow a lender’s loan portfolio and profits. 

AI additionally allows automated systems to assess and recognize certain loan information, like credit scores and income. These can then be used to produce a preliminary decision on a loan, providing an additional assessment of whether a decision requires human intervention.

AI for Auto Lending: In-House vs. 3rd Party APIs

An application programming interface (API) is necessary to apply AI technology. Though this can be done theoretically in-house, a third-party vendor likely is the better solution. Though an in-house solution can be tweaked to provide custom functionalities, these will require much greater expense in both time and resources to keep it operating properly. Therefore, when looking at incorporating AI into lending software, the optimal solution is to use a third-party provider, as it allows for easier scalability and greater flexibility.

Integrating AI: Auto Lending With defi SOLUTIONS

The use of AI technology within the auto finance sector, and the lending industry as a whole, is still developing. Due to its relatively recent introduction into auto financing applications, there are likely to be new ways in which this technology will be used in the near future. A recent survey of executives from the auto finance industry showed 95 percent are already utilizing AI technology for processes like decisioning and servicing, with nearly half of all respondents stating that better regulatory compliance was a goal.With the use of AI, auto lending doesn’t automatically translate into success. When it’s implemented correctly, however, AI tools make a lender’s operations more efficient and improve customer experience. That’s why defi SOLUTIONS partners with third parties like Point Predictive to provide lenders with the tools. Using AI, auto lending companies can also incorporate such things as intelligent virtual assistants to make customer service more seamless and improve consumers’ experience.

Getting Started

defi SOLUTIONS is redefining loan origination with software solutions and services that enable lenders to automate, streamline, and deliver on their complete end-to-end lending lifecycle. Borrowers want a quick turnaround on their loan applications, and lenders want quick decisions that satisfy borrowers and hold up under scrutiny. With defi ORIGINATIONS, lenders can increase revenue and productivity through automation, configuration, and integrations and incorporate data and services that meet unique needs. For more information, contact our team today and learn how our cloud-based loan origination products can transform your business.

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