A typical lender receives anywhere from five to 20 loan applications for every one contract. Experts say, there is a lot of valuable information that can be obtained from tracking those lost transactions.
How did those loans perform? Did they default? What competitor ended up booking that loan? “There is a great deal of information, not only for the risk team to analyze, but also for the sales and credit teams,” Lou Loquasto, auto finance leader at Equifax, told Auto Finance News.
What use can a lender make of that data? Loquasto laid out three reasons for how tracking lost transaction data is beneficial for auto lenders.
Differentiated pricing. In many cases, lenders find that the offer they made to the dealer is exactly the same as the competition’s. The key is to determine why they didn’t get the loan, Loquasto said. By tracking lost transactions, lenders are able to monitor a loan’s performance and devise ways to tweak pricing elements going forward.
Loan structure, collateral value combo. Reviewing the performance of lost sales offers the opportunity to analyze the combination of loan terms and structures with depreciated collateral values. This strategy will help lenders understand how they perform in the “big picture” and aid in calculating loan-to-value ratios going forward.
Hindsight is 20/20. To remain competitive, lenders should track the performance of previously lost transactions – even from a couple years back. “At what rates did your competitor end up booking the loan? Did it perform well?” Loquasto said. “You spend all that effort and money to look at applications with your sales team, you need to know how those ended up.”
In fact, lenders increasingly recognize the use of that data, Loquasto said. Just last week, Equifax partnered with Black Book to provide updates to the Lost Sales Analysis tool it introduced in 2014. The upgrade is based on feedback from 30 lenders that use the tool.