Are Auto Lenders Meeting Consumer Expectations For Digital Originations and Servicing?

The Auto Finance Innovators Forum kicked off with the findings of a consumer survey filled with statistics and insights to direct auto lending’s “new normal.” Jake Levant, vice president at Lightico, and Nick Zulovich, senior editor of Auto Fin Journal and SubPrime Auto Finance News, presented the results. The survey revealed that despite fewer opportunities in loan originations, lenders can maximize their chances of success by meeting consumer expectations for fully remote, digital processes.

Financial Fears Are Negatively Impacting Auto Purchasing

With no clear end in sight for the coronavirus pandemic, consumer financial fears have risen as well. An incredibly high number of survey respondents, 91%, say they are concerned about their ability to pay back their car loan over the coming months. This is up from just 51% in March. Half a year of employment uncertainty, or in some cases furloughs or job losses, has taken its toll. Many if not most sectors have been impacted by the pandemic, and consumers are feeling the financial crunch. “There’s been a major slowdown in job recoveries since the summer uptick in coronavirus cases,” said Nick Zulovich. “Over 25 million Americans are currently drawing unemployment benefits. A lot of households have had to make adjustments.” As a result,

70% of customers in our most recent survey are reconsidering a car purchase that they had planned to make in the coming months.

Of course, people are still dependent on their cars for traveling to a job (if they are still employed) and running important errands. It’s not that people are giving up on automobiles, but they are more likely to stick with their older vehicles for a longer time due to market uncertainty. Even consumers that are following through on their car purchasing plans are changing their tune. Nearly half of this group says they will be purchasing a “lower-cost model” than they originally planned. In addition to waiting or downgrading their car, Zulovich has observed an uptick in more utilitarian car purchases on the wholesale side. “We’ve seen some of the strongest demand has been for compact SUVs where there is more utility and a better cost proposition for the consumer,” he said. 

The Importance of Being Digital: For Originations and Servicing

As we’ve seen, consumer financial strain is reducing the demand for new cars and loans. At the same time, borrowers are rushing to change the terms of their existing car loans. In fact, 71% of borrowers have already or are looking to change the terms of their car loan (up from 40% in March). The implications for auto lenders are twofold: First, they need to cope with the new strain on servicing resources. And second, they need to maximize the efficiency and customer experience of any origination opportunities that are coming in. On both the origination and servicing sides, the survey results clearly show that consumers demand digital processes. Digitizing both loan application and modification processes can help auto lenders lock in valuable new opportunities, and cope with an influx of modification requests.

Make Each Originations Opportunity Count With Digitization

Loan originations are sluggish, which means each potential borrower is gold. Auto lenders and dealers cannot afford to squander a single opportunity that comes their way. This means that they must be in tune with customer needs like never before and adapt. Official lockdown restrictions are being lifted across the country, but that doesn’t mean consumers are comfortable with ending social distancing. 93% of respondents in our September survey say they are concerned about going out to visit a dealership or auto lender. What makes this so dramatic is that it’s up from 76% in March, when the coronavirus was a new and uncertain threat. As the pandemic drags on, willingness to interact in-person keeps dwindling. This means that auto lenders and dealers must go digital to meet customers where they are — or lose out on available opportunities. Our latest survey found that a whopping 89% of consumers would be more likely to purchase a vehicle in the next few months if they could complete the process online. Of consumers who purchased a car in the last nine months, a majority (59%) were able to do so online. This suggests that many dealers and lenders are already aware of the urgency to digitize, and have adapted. These numbers also show the flip side, which is that a sizable minority of dealers and lenders are lagging when it comes to digitization. Such dealers will find themselves missing out on opportunities, especially as the number of digital-first providers continues to rise.

Keep Up With the Surge in Servicing Demand With Digitization

Given the uptick in servicing demands, auto lenders need to process loan modification requests faster and more efficiently. Digitization can make a tremendous difference here, allowing lenders to modify more loans in less time, without the need to hire additional personnel. With digitized loan request forms and document collection, lenders can streamline their servicing processes and keep operational costs down. Unfortunately, the survey shows that car loan servicing is still not digital enough. While many lenders have made great strides in digitizing loan originations, the servicing side of the equation has largely been neglected. Only 20% of borrowers were able to change their loan terms online. Contrast this with the

87% of borrowers who expect to be able to complete an auto loan process entirely online.

This is a real lost opportunity, as refinancing is generally more straightforward and has fewer moving parts than originations. [Learn more about how to service borrowers remotely and digitally here.]

The Takeaway

Auto lenders and dealers may be seeing fewer originations due to the financial climate, but they can still win with the cards they have. By catering to consumer preferences for digital processes, the automotive industry can attract and close more opportunities, and service existing customers with greater efficiency and speed. Learn how fully remote eSignatures, eForms, and digital stip collection can help boost auto loan completion rates and speed up servicing at Lightico.com.