A worrisome auto finance industry trend is developing: After years of growth, sales have been declining since 2017. The decline is predicted to continue through 2018 and possibly into 2019.
Car owners keep their vehicles longer. Used car inventory is high, which reduces demand for new cars. City-dwellers often prefer car-sharing or Uber/Lyft to owning cars outright. Rising interest rates make consumers wary of taking on new debt. Declining sales means fewer auto loans, greater competition among lenders, and the need to optimize loan portfolio profitability.
While manufacturers and dealers contend with declining sales, customers are asking “Why is the auto loan process so complex, and why does it take so long to reach a credit decision?” Customers want simpler loan applications—and faster decisions about those loans.
There are two auto finance technology trends help lenders thrive in this increasingly-competitive market: cloud-based lending and analytics-driven portfolio optimization.
The best lending solutions are born in the cloud. They fully exploit the proven technical capabilities of the cloud to enable a better lending experience. Lender benefits are undeniable: faster implementation, continuous delivery of new functionality, frequent software updates, and cost savings when compared to legacy on-premise lending systems.
A modern loan origination solution delivered via the cloud simplifies the lending process and facilitates faster decisions by:
- Allowing loan originations to be initiated anywhere there is an internet connection and browser
- Digitizing loan documents to eliminate the cost and delay of shipping paper to the lender, reducing processing and response time
- Replacing manual processes with automation and business rules to process more loan applications with greater accuracy and consistency
By employing modern lending functionality delivered by the cloud lenders cost-effectively process more loan applications. Lenders will also make better quality lending decisions that positively impact profit.
Until recently, analytics was the realm of specialists. However, vendors now deliver analytic tools tightly integrated with their software offering. These tools help lenders identify patterns, trends, and anomalies in their portfolio and lending processes—all without the need of dedicated in-house analysts.
By applying analytics to the portfolio can gain lenders a better understanding of where and why they are profitable, as well as where and why losses occur. With regular use of analytics you can:
- Identify the most profitable deal sources
- Determine borrower characteristics that indicate potential delinquency risk
- Monitor approval, book-to-look, and capture ratios by week, month, or years
- Identify bottlenecks in loan processes and eliminate them
Analytics help lenders modify and fine-tune lending policies and practices—and respond to market changes quickly when needed.
Lenders who succeed in a declining market will do so because they provide a better lending experience via the cloud. It will enable them to significantly improve the ease and speed of the lending process, reduce transaction costs by more efficiently processing applications, and continually analyze process efficiency to achieve better quality credit decisions.
Contact our experts online to learn how our solutions help you remain profitable in an increasingly competitive market. defi SOLUTIONS provides a cloud-based loan origination system (LOS) and analytic capabilities (defi Analytics).