The Benefits of Artificial Intelligence in Auto Lending

© Can Stock Photo / SergeyNivens

We are inundated with discussion about how new technologies promise to change the way that we do business and live our lives. Yes, many of these proclamations offer rhetorical flourish and grand visions. That said, there are new technologies available and startups that are maximizing these technologies to transform the auto industry — even today.

One benefit which is already evident is the impact of artificial intelligence on the auto industry. The advent of sophisticated artificial intelligence and machine learning systems has already transformed some elements and procedures within the auto industry and will do so even faster in the future, as artificial intelligence technology improves. Whether you are a finance professional in the auto industry, an auto manufacturer, or even a dealer, it is critical to pay attention to this trend as it speeds into the future.

When first thinking of artificial intelligence in the auto industry, it is easy to point to the rise of autonomous vehicles. It promises to vastly affect the future of the industry itself, from preventing deaths on the road to developing new methods to entertain riders as they are on the road.

Yes, self-driving cars are still a few years off. But that hasn’t stopped artificial intelligence from making its mark in the auto industry. The change may be less visible for some, but it’s quickly gaining momentum. Specifically, we’re speaking about the intersection of artificial intelligence and automotive finance—particularly, leveraging AI technology to determine whether a borrower is likely to pay off their car loan. By understanding the probability of whether a particular customer or group of customers can pay back the entirety of their loan, auto finance companies can better manage their risk when waiting for repayment.

So how does it work? By coupling massive amounts of loan data and computing power, Aclaró a new technology company has developed an Artificial Intelligence system that trains neural networks by analyzing the patterns within a loan portfolio’s data. Once the Artificial Intelligence (AI) systems are trained, the AI’s are provided with data from active loans which are analyzed to calculate the probability of payment default and the level of confidence in the probability’s outcome.

The tool was created for use by all employees in a lenders organization. For example, when the CFO of an auto finance company runs their loan portfolio through the AI’s, the system can identify trends in the portfolio in less than 10 minutes. The Risk Assessment dashboard has are tools which allow users to value their portfolio in a variety of ways, such as risk-adjusted factor or the ability to zero in on the riskiest loans within a specific bracket such as “A total of 13-14 completed payments.” These are just a few of the system’s trend filtering options.

The AI’s work quickly, the average risk evaluation analysis of a portfolio which contains 10,000 loans, is completed in under 30 seconds. Clearly, this technology is a game-changer in auto finance. Users can understand where their riskiest loans are and the profile of specific borrowers who may be delinquent, this advantage can help an auto finance company mitigate its risk, both now and in the future. In other words, it provides a sanity check, as its conclusions are based on cold, hard data rather than emotions.

There are several companies working to offer new technology to the auto finance community. Aclaro, for instance, has developed this new FinTech – Repayment Risk Artificial Intelligence System that can judge with high accuracy whether a particular borrower will default on a subprime auto loan. On average, Aclaro’s predictions as to a charge off or a paid loan were over 97 percent accurate. These sort of conclusions can be extremely helpful for an auto finance company who may be unclear about a potential return in some of its loan portfolios.

Ultimately, while we wait for artificial intelligence to lead to ubiquitous self-driving cars, we can already see the early benefits of the technology in the auto finance community. By partnering with a company like Aclaró, your company can mitigate risk and financially prepare for the future.

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