Accurate estimated online payments are crucial to driving online vehicle sales. However, as auto lenders embrace AI-based pricing, reduced pricing transparency and discrepancies in consumer credit score information contribute to inaccurate quotes.
Consumers want transparency, prompting more dealers and lenders to provide online monthly payment estimates, automotive fintech eLEND Solutions’ founder and Chief Executive Pete MacInnis, told Auto Finance News on Feb. 3 at the National Automobile Dealers Association Show in Las Vegas.
“Affordability matters more than ever,” he said.
The fintech provides digital credit, identity and finance solutions for remote and in-store sales processes, according to eLEND’s website.
No more rate sheets?
Lenders historically have provided digital rate sheets for dealers to use to estimate a consumer’s payment but have become more “sophisticated in their underwriting guidelines,” MacInnis said, adding that rate sheets often don’t consider other factors that go into determining a consumer’s creditworthiness.
“A lot of lenders started cutting back on providing [rate sheets] to dealers,” he said. “The dealers don’t have the guidance. … [Lenders’] scorecards and decision processes must be integrated into the sales process earlier. Lenders’ [decision] engines must be able to communicate customer-tier pricing earlier.”
Without rate sheets, dealers often must rely on “educated guesswork” based on historical data when it comes to quoting payments, MacInnis said.
“There’s a huge disconnect between the sales and finance process, both in-store and online,” he said. “Lenders are saying, ‘Give me the customer, I will tell you what his terms are.’ [But], in the sales process workflow, sales and finance are disconnected.”
Inaccurate estimates
The lack of guidance is contributing to inaccuracies in online payment estimates, MacInnis said.
In fact, 90% of respondents in a survey of more than 300 auto dealers and lenders conducted by eLEND in December indicated that pricing based on AI-populated metrics, rather than legacy pricing based on credit tier, is contributing to inaccurate payment quotes provided to consumers online. The survey respondents were made up of 76% dealers and 24% lenders.
The fintech’s survey also found:
- 86% of participants said inaccurate online quotes adversely impact buying experiences;
- 20% of respondents reported that the estimated initial online monthly payments match the final lender decisions less than half of the time; and
- 56% said initial and final payments match less than 25% of the time.
Customer-driven credit calculations
The issue is largely tied to online quotes calculated with consumer-provided credit score information, MacInnis said.
Consumers can check their credit scores through credit reporting agencies such as Equifax, Experian and TransUnion. However, lenders also consider factors outside of credit score, such as debt to income ratio, to determine whether to lend credit to a borrower and finalize the borrower’s rate and payment.
About 64% of eLEND survey participants reported that their initial online quotes are primarily based on credit information provided directly from consumers, with 17% naming actual FICO score as the initial indicator of estimated payments and 4% leveraging actual lender decisions, according to the fintech.
“It’s problematic to start with; you’re letting your customer determine their credit qualifications,” MacInnis said. Dealers aren’t “touching application or credit data but are quoting payments to a customer.”
Early-bird registration is now available for the second annual Auto Finance Summit East 2024, May 1-3 in Nashville, Tenn., which gathers lenders, dealers and fintech innovators in an event designed to bring the power of technology to a cross-section of industry players. Early-bird pricing ends March 15. Visit AutoFinance.Live to learn more.
