BLOG

In the ever-evolving landscape of auto financing, the dynamics of the auto loan origination process have shifted dramatically, thanks to the integration of fintech innovations. This transformation has ushered in a new era where data-driven decisions play a pivotal role in reshaping the automotive lending industry. In this comprehensive guide, we delve deep into the world of auto loan origination, dissecting its process, fraud detection, and the role of fintech.

Auto loan origination, at its core, is the process through which financial institutions, such as banks, credit unions, or online lenders, create and process loans for individuals seeking to purchase vehicles. This process encompasses everything from the initial loan application to the disbursal of funds.

A crucial component of auto loan origination is the loan origination system, often referred to as LOS. This is a specialized software platform used by lenders to manage and streamline the loan application process. The LOS ensures that all necessary information is collected, verified, and assessed in a consistent and efficient manner.

The auto loan origination process can be broken down into several key stages:

1. Application Submission: The journey begins when a prospective borrower submits their loan application. This application typically includes personal information, financial details, and the desired loan amount.
2. Credit Evaluation: Lenders evaluate the applicant’s creditworthiness by examining their credit score, credit history, and other financial factors. The fintech-driven auto loan origination system plays a critical role in automating this assessment.
3. Data Gathering: In addition to credit data, lenders may gather information related to the vehicle being financed, such as its make, model, and purchase price.
4. Decisioning: This is where fintech takes center stage. Decisioning, powered by advanced algorithms and big data analytics, helps lenders determine whether to approve or decline the loan application.
5. Documentation and Verification: Once a loan is approved, lenders require applicants to provide documentation to verify the information provided in their application. This step helps mitigate potential fraud risks and ensures compliance with regulatory requirements.
6. Loan Funding: After successful verification, the lender disburses the loan amount to the borrower or, in many cases, directly to the dealer.

In the modern auto loan origination landscape, data is paramount. Lenders now have access to an array of data sources and services that enable them to make more informed lending decisions.

• Credit Bureaus: Traditional credit reporting agencies provide credit reports and scores, which remain a cornerstone of the auto loan origination process. Lenders use these reports to assess creditworthiness and determine interest rates.
• Alternative Data: Beyond traditional credit data, fintech lenders tap into various data sources, such as utility bill payments, rental history, and even social media profiles, to build a more comprehensive view of an applicant’s financial health.
• Machine Learning: Advanced machine learning algorithms analyze vast datasets to identify patterns and trends, aiding in predicting an applicant’s likelihood of default or delinquency, and their propensity to pay
• Fraud Detection Services: To combat potential fraud in auto loan origination, lenders employ specialized services that flag suspicious applications and activities.

Auto loan origination fraud is a persistent challenge in the industry. Fraudsters employ various tactics to secure loans they have no intention of repaying, resulting in financial losses for lenders. Fortunately, advanced decisioning systems equipped with fraud detection capabilities are instrumental in identifying and mitigating such risks. These systems analyze multiple data points to flag inconsistencies, suspicious behavior, or potentially fraudulent applications.

The automotive industry has undergone a remarkable transformation since the days of the Model T, priced at a modest $850, equivalent to approximately $20,000 in today’s currency. During that era, financing became a necessity, as few individuals had such substantial sums readily available. Recognizing the opportunity, companies like GM and Ford swiftly established financing divisions, not only boosting car sales but also diversifying their revenue streams—a stroke of genius!

For a century, auto dealerships held sway in the auto lending domain, facing minimal competition beyond their peers. Buyers would stroll onto the dealership lot, engage in negotiations over lukewarm coffee, haggle over sticker prices, and drive off in a new car, savoring the scent of fresh upholstery. Trade-ins and financing were mere formalities in the car-buying ritual.

However, as time progressed, winds of change began to sweep through the industry, reshaping the dynamics of auto financing.

In today’s automotive financing landscape, consumers wield an unprecedented amount of information. As the saying goes, knowledge is power, and this newfound knowledge empowers buyers while challenging the traditional balance of power in the auto lending domain.

This scenario parallels a scene from Game of Thrones, where Lord Petyr “Littlefinger” Baelish engages in a tense exchange with Cersei Lannister. In this dialogue, “Knowledge is power” is asserted by Baelish, but Cersei counters with a simple yet profound statement: “Power is power.” This mirrors the contemporary auto lending dynamic, with buyers armed with knowledge seeking to assert their position in the auto financing realm.

Waiting around at a dealership in order to complete financing paperwork can be tedious. And consumers these days aren’t content to wait around for long. But when consumers express dissatisfaction with an industry, it creates an opening for innovative businesses to disrupt the status quo. Hence, competition in auto financing is growing, and dealerships are working harder than ever to secure financing alongside car sales.

A peek into the future of auto financing reveals a landscape where financing can be secured with a simple click, and a new car can be delivered to your doorstep within hours, bypassing the need to set foot in a dealership.

1. Direct Lending: Direct lending has become commonplace and competitive, challenging traditional dealership financing.
2. Aggregators: Aggregator platforms are offering transparency to buyers while streamlining the often cumbersome paperwork for dealers.
3. Online Upstarts: Digital platforms are emerging, catering to customers who prefer an online experience over visiting a dealership.
4. Brands Entering the Game: Car manufacturers themselves are testing the waters with direct-to-consumer financing.

However, amidst this evolution, one constant remains—the importance of technology in enhancing both business and customer experiences.

In a world where relationships are the key to longevity in lending, dealers must treat their customers as equals. The hard sell, lengthy application processes, and delayed approvals no longer suffice. Customers have alternatives, and they won’t wait.

To retain their throne in auto loan origination, dealerships must offer an experience that aligns with customer expectations. In today’s digital-first world, this means a seamless and competitive experience that values the customer’s time and understanding.

• Streamlined Process: The finance process should be quick and easy, with minimal paperwork.
• Rapid Decision-Making: Technology-driven decisioning can process applications in milliseconds.
• Customer-Centric: Show customers that their time is valued by going the extra mile to simplify the process.

• Industry disruptors offer personalized pricing based on advanced risk models.
• To compete, dealerships need technology that provides quick decisioning and accurate, risk-based pricing.

The story is far from over, and the throne is up for grabs. The winner will be decided by who provides the superior experience—dealers or disruptors. The battle for buyers’ attention is likely to continue, with customers ultimately determining who shares the throne in the future.

BLOG

Did you know that 65% of car shoppers feel that finance applications take too long? Whether you’re looking for a car, an RV, a motorcycle or even a boat – some of the biggest headaches in our buying lives come from the mountains of paperwork that financing or leasing a vehicle requires. The traditional loan origination process is arduous, doesn’t benefit either the customer or the lender, and increases the risk of losing a customer before they can sign on the dotted line.

Let’s face it, customers are not keen to sit in dealerships for hours and fill out reams of paperwork to hopefully get approved for a loan. In the age of instant everything, customer experience matters. Entertainment is available on demand, your favorite milkshake can be delivered without talking to anyone, you can order a ride in minutes – consumers expect more and aren’t shy about telling the world when their expectations aren’t met. Brands that make missteps should expect to have their failures broadcast far and wide in viral twitter threads, WhatsApp groups and Facebook posts.

If traditional vehicle dealers want to maintain and grow their customer base, they need to ensure consumer satisfaction. There are countless examples of small, innovative companies that grew to behemoths – they all have a few things in common:

1. they take something (a process, a product, a service) that frustrates consumers and change it entirely to better suit the consumer’s needs;
2. they continuously adapt to changing, emerging technology and;
3. they treat their customers incredibly well.

Look at Uber and how they changed the face of private transportation. Or Netflix and how they’ve completely disrupted cable television. Or Airbnb and VRBO and the changes they’ve inspired in the hospitality industry. Of course, there’s also Amazon and the way it changed… everything, or Facebook and the advent of instant, social, worldwide communication. And no list of disruptive tech would be complete without Apple, the mother of all companies that entirely transformed the way people use personal technology. One of the ways that Apple has disrupted an entire industry is through functionality – or more specifically, the ease of functionality. “Using an Apple product feels so natural, so intuitive, so transparent… The design is so intuitive that the instruction manual is almost non-existent.” What if auto lenders positioned themselves the same way? And what if what they promised was actually true? These days, you can get a car delivered to your doorstep with innovative companies like Carvana or Carvago without having to set foot in a dealership. It’s never been more important for auto lenders to ensure they are easy to work with. 

More than ever before, our connected world and social media makes it possible for companies that do things really well to stand out. On the flipside, it ensures that the word is spread about companies that don’t do things well. Consumers have inside access to brands in a way they’ve never had before – they can sit on the phone waiting for a faceless customer service rep to maybe answer the phone, or they can instantly tweet their complaints and get a company rep to address their concerns in real time (while the rest of the twitter-verse watches). Even with the supposed ease of online loan applications, 90% of bank customers will abandon an onboarding application if the process takes more than an hour to complete, according to The Paypers. Bottom line? Consumers won’t sit and wait around for a subpar experience if they don’t have to.

So how does this translate to something like auto loan origination? The old-guard method of auto financing requires customers to fill out mountains of paperwork, provide copious amounts of data and multiple forms of identity. Behind the scenes underwriters then spend hours manually processing applications to determine a customer’s credit risk. The end result? Customers often feel like their time isn’t valued and that they are little more than a number on an assembly line. Even if you have technology in place to support increased automation and faster underwriting, as soon as your sales rep needs to make a phone call for a loan approval, you’re already too slow for today’s savvy, instant-everything consumers. But the good news is, when there are problems or lags in an industry or process, innovation flourishes. 

Captive/manufacturer finance currently owns over half of the market, so there is a lot to lose. Conversely, new competitors like smaller lenders have a long runway of opportunity. They are threatening the traditional dealership finance and sales process, and these threats are growing rapidly:

• Direct lending is now common, and competitive
• Online organizations are appearing everywhere, effectively eliminating the in-person dealership experience (and never is this more prevalent than now)
• Big brands, especially for electric vehicles, are looking at ways to bypass dealers altogether (who knows what Tesla will do next!)

Enter in a new way of originating auto loans that can help transform the dealership experience:

• Smart, digital applications that automatically pull information in through a decisioning platform
• Automated KYC data, including identity verification and due diligence
• Powerful decisioning tools that automate data gathering, risk modeling and personalized pricing
• Loan decisions in UNDER A SECOND

A truly memorable, satisfactory consumer experience in auto financing is fast, easily available, and most importantly, personalized. Your customers aren’t just numbers and your finance products need to reassure them of that fact.

The future of auto financing is here – the question is how many auto lenders will put their customers first and take advantage of it? The kicker is, not only will those who do take advantage of it have happier, more loyal customers, but they will also be poised to innovate better, and faster. By creating new industry benchmarks – with better deals, instant approvals and personalized processes – you can stand out in the auto financing industry. And maybe even be the subject of the next positive viral twitter thread?

Download the eBook to discover how auto financing is changing. Learn how you can improve the customer experience and innovate faster with real-time data and AI-powered, automated decisioning tools.

BLOG

The very first car loan was originated by General Motors Corporation in 1919, and in the century since, leasing and financing has become a critical part of the automotive industry globally. But has the customer experience changed much since then? Picture your last automotive purchase – did it involve lots of paperwork, sitting around at a dealership, and painful photocopies of every single piece of your ID?

Ninety minutes is all it takes for customer satisfaction to decline at a car dealership, and according to AutoTrader, 65% of car shoppers think that financing and paperwork take too long. But don’t fret – as the world continues its rapid advance towards digitizing everything, auto lenders are following suit. In fact, 72% of consumers want to complete credit applications and their financing paperwork online. So we’ve found ten innovative fintechs/financial services organizations that have figured out how to help them do so or have innovated other aspects of the auto financing process.

1. Upstart – Auto Retail: Combining online and in-store digital retail capabilities, Upstart Auto Retail aims to help car sellers/dealers create a truly omni-channel purchasing experience. Upstart is an AI lending marketplace that looks to improve access to credit, and has automated the auto lending experience, enabling more loan approvals in real-time, based on individual pricing and financing rules established by the dealer.
2. Caribou: With a mission to put drivers in control of their automotive finances, U.S.-based Caribou enables ‘flexibility and freedom’ in car payments, thanks to their fast and easy auto refinancing program. Offering instant access to competitive financing rates and a secure online application platform, Caribou saves its customers an average of $100 per month on their car payments.
3. TU Auto Payment Shopper: Combining affordability with real-time inventory, TransUnion’s Auto Payment Shopper is an upgraded retail portal that allows consumers to complete more of the auto financing process online. Enabling consumers to compare vehicles (and vehicle payments) before submitting an application, the program, in partnership with CarNow, ensures people understand which vehicles they can afford before having to go through the entire process.
4. Cazoo: UK-based Cazoo allows consumers to buy or finance vehicles entirely online, with delivery or pickup of new cars in as little as 72 hours. Promising ‘simple’ financing of used cars, Cazoo offers competitive interest rates, fast decisions, and applications and agreements for financing all done online, thanks to its data-driven strategy.
5. AutoFi: With online commerce and showroom options, as well as a whole suite of APIs, AutoFi enables auto lenders to incorporate digital sales and finance tools right into their existing platform or build their own from the ground up. And AutoFi ensures automated financing processes with direct partnerships with over 40 lenders, smart lender routing, and real-time decisioning direct to consumers.
6. Carvana: Carvana, one of the leading online car-buying sites in the U.S., also makes it easier for consumers to finance used vehicles. Consumers can browse the site to find their next vehicle, apply for financing directly with Carvana, and have their new vehicle delivered right to their driveway. With their pre-qualifying auto loan program, the company allows buyers to browse inventory with personalized financing terms, without impacting credit scores with hard credit checks until they are ready to buy.
7. Automatic: Billed as a one-stop-shop for auto financing, Automatic is a platform that allows both small and large independent dealerships to take control of their financing products. Featuring an open marketplace that enables dealers to connect to a variety of financing options instantly after pushing through a credit application from a consumer, Automatic offers real-time results and speedy approvals, all in a single online platform.
8. AusLoans: Based in Australia, AusLoans Finance Group positions itself as one of the nation’s leading Asset Finance aggregators, thanks to its dedicated investment in technology and transparency, and also offers customer financing options for automotive businesses. Featuring a point-of-sale automotive financing solution, partnerships with over 40 local lenders, fast approvals, and paperless application processes, AusLoans can offer loans of up to $500K to dealerships to pay for automotive services.
9. Ally: Ally, a leader in digital financial services, also offers personal vehicle financing with flexible terms and easy payment options. With online account management and a mobile app for customers to keep on top of their account on the go, Ally aims to provide auto financing that fits every type of consumer. They even offer specialty vehicle financing, with flexible terms that cover accessibility needs like hand controls and wheelchair lifts.
10. CarDoor: Partnering with multiple lenders, Canada’s CarDoor ensures consumers get the best possible financing rates and receive approvals in only minutes. With a completely digital car buying process, CarDoor offers an online application process and financing that is promised to be secure, transparent, and flexible – all at the best possible rates. And as a bonus, customers can pre-quality with only a soft credit check, and approved loans also get a free TransUnion Risk Score Report.

These organizations all understand that a memorable, satisfying consumer experience is one that is fast, digital, and easy. The future of auto financing is here, but how can all lenders join the club? One way to ensure automated decisioning, rapid approvals and personalized experiences is with real-time data and AI-powered decisioning solutions. Being able to easily access, integrate and analyze alternative data especially is key, thanks to today’s increasingly diverse populations. Many people globally don’t have traditional credit histories or can’t easily prove creditworthiness with a traditional credit report or score. But being able to integrate things like rental and utility payment data, social media and web presence info, and travel information can help. Despite the current economically uncertain climate, Mordor Intelligence predicts that the global automotive financing market is expected to reach $300 billion by 2026, so there’s never been a better time to drive more innovation in auto lending.