Open Lending expands insurance coverage to older vehicles

Automation fintech Open Lending is increasing the vehicle age it will cover under its Lender Protection program to help combat affordability concerns for near and non-prime consumers as new- and used-vehicle prices continue to increase. Open Lending ’s Lenders Protection platform leverages artificial intelligence (AI) - and machine learning-based parameters to allow auto lenders to dip into lower credit tiers by insuring those loans for up to 80% of the losses. The Austin, Texas-based fintech has increased its allowable vehicle age to 11 years from 9 years, Chief Revenue Officer Matt Roe told Auto Finance News , noting the company previously expanded coverage by two years from 7 years old. “This is a way for us to sort of widen the net for our bank partners and our credit union partners to approve more of these older vehicles but not increase the risk to the financial institution,” Roe said. Open Lending is expanding its vehicle age parameters as the average age of financed vehicles has increased due to elevated pricing on new and used cars, he said. “The average age of the vehicles being financed was growing significantly … especially [for consumers] in the near and non-prime segments that are more payment shoppers,” Roe said. “In order to get a payment that still fits their monthly budget, they were looking for older vehicles.” [caption id="attachment_57333973" align="alignnone" width="2560"] © Can Stock Photo / pincasso [/caption] Falling behind on payments The fintech did not make any adjustments to its loan protection policy to account for increased vehicle age, he said, noting the concern is not about the frequency of default but instead how long that vehicle can remain on the road. “As you get to those older vehicles, default is not necessarily driven by the borrower's ability to repay; it's typically driven by the car breaking down,” Roe said. “Is the car going to be able to sustain over those 48 months or that 60-month term? “As the mileage increases, the vehicle is more likely to break down, and when a near-prime or nonprime borrower has a major mechanical failure of the vehicle, that's typically where they might say, ‘It costs too much to repair, I'm going to fall behind in my payments,’” he said. Open Lending caps term lengths depending on vehicle’s mileage, Roe said. The maximum mileage a vehicle can have at purchase is 150,000 miles, Roe said, noting vehicles with 100,000 to 125,000 miles are capped at 60-month terms and vehicles with 125,000 to 150,000 miles are capped at 48-month terms. Opening the platform to older vehicles is the latest step Open Lending has taken to address vehicle affordability. The fintech expanded its maximum auto loan terms to 84 months from 75 months in September 2022 for new and used vehicles up to 4 years old with less than 60,000 miles to lower monthly payments and make vehicles more accessible for consumers. In October 2022, Open Lending expanded its maximum payment-to-income (PTI) ratio to 18% from 13% and added the capability to price loans based on PTI. Auto Finance Summit East, Auto Finance News’ new spring event, kicks off May 10-12 at the JW Marriott Nashville featuring a fireside chat with Peter Muriungi, CEO of Chase Auto. Visit autofinance.live.

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