Cloud-based LOS makes sense for EV financing

Consumers have expressed strong interest in purchasing green vehicles in recent years, which is good news for the environment, the economy and the auto industry. The International Energy Agency reported that some 13% of all cars sold in 2022 worldwide were electric vehicles, placing the target of achieving zero net emissions by 2050 within reach. 

In North America, the trend toward purchasing sustainable vehicles is strong: New York City expects that 25% of all vehicles sold in 2025 will be electric; Los Angeles anticipates reaching this milestone 10 years later; and Vancouver, British Columbia, expects to climb to 25%in sustainable auto sales as soon as 2026. 

As the appeal of eco-friendly vehicles continues to escalate, these transactions impose a number of complexities on the lenders, dealers and manufacturers who facilitate and finance these purchases. The lending process must incorporate several layers of rebates, incentives and options for financing — from federal and state governments, manufacturers and other sources — that change on a regular basis, requiring substantial expertise to ensure that the appropriate party is paid incentives and rebates. 

Car values and prices fluctuate from transaction to transaction. The complications can be dizzying, but reliable cloud lending platforms can eliminate these intricacies and make the entire loan origination process much more efficient, accurate and pleasant for the parties involved.  

Myriad factors 

Governments and some manufacturers continue to aggressively introduce an array of incentives and rebates, which are often the source of confusion to both lenders and consumers. Some of these programs are based on the make and model of the car or on the type of battery that is used — even where the battery is manufactured — or on the location of the buyer. These programs can be stand-alone incentives or in concert with other offerings.  

This can confound the best dealer and the most experienced lender. The one constant is that rates and rebates routinely change based on market conditions, technology innovations and other factors. An automated LOS platform that is properly configured will support the unique attributes of sustainable vehicle lending and remove the likelihood that any rebates and incentives are not properly captured and handled.  

Changing rebates 

Another consideration for lenders is the calculation of the actual value of the loan and determining the affordability of the purchase. Lenders underwriting eco-friendly vehicles should take measures to properly pre-qualify buyers based on the monthly payment rather than the purchase price of the vehicle. The rebates and incentives for these vehicles can be quite substantial and vary among jurisdictions.  

For example, the Internal Revenue Service offers a $7,500 tax credit for buying an electric car, which alters the calculations for determining the affordability of the car. California offers up to a $7,500 rebate for purchases or leases and New York State gives buyers up to $2,000 in rebates. In Canada, the federal government provides up to $2,500 in rebates — in Quebec, the incentive can reach $7,000.  

Determining who receives the funding for these incentive programs also changes the affordability of the loan. In some scenarios, it can be the dealer that earns the rebate. In still other scenarios, the consumer receive it; the situation varies from state to state and province to province. Depending on the type of vehicle and where the purchase is made, the whole structure of the deal can change, impacting the final purchase price and the monthly payment. The LOS is the best resource that lenders have to manage the complex valuation process for eco-friendly vehicles and ensure that consumers can afford the cars they want.  

The best option 

Data shows that the shift toward sustainable vehicles will only accelerate over the next half-dozen years. Consumers clearly want these cars, and dealers and lenders are working hard to put the financing pieces in place to fund these deals. With the complex mechanics of funding these automobiles, a cloud-based LOS remains a lender’s best option for ensuring that loan applications are properly processed, valuations are precise and rebates and incentives are correctly assigned. It may appear complicated and confusing, but a configurable LOS is ideal for handling these sophisticated requirements. 

Sam Heath is the chief revenue officer at Inovatec Systems. Inovatec provides LOS, LMS and direct systems that seek to eliminate friction in the lending process and automate much of the manual work of originating and managing loans.  

The Big Wheels Auto Finance Data 2023 report, the only tabulation of the top 200 auto lenders by outstandings, is available now.