Auto Lending During COVID-19

Lightico conducted a survey of more than 1,000 consumers on March 29, 2020 to reveal new insights into how COVID-19 is impacting the auto lending industry, and consumer expectations and concerns. The data support anecdotal evidence that, while loan originations are declining, consumers are considering adjusting their loans over the coming months to cope with the financial impact of the coronavirus. Here are some of the top takeaways from the study:

Consumer financial and health anxiety is running high

Unsurprisingly, the survey found that consumers are dealing with anxiety surrounding their personal health and finances. With much of the world under some degree of lockdown, and incidents of virus skyrocketing in many communities, consumers are reluctant to leave their homes if they can avoid it. 76% of respondents expressed trepidation around going to their local bank or car dealer due to fears of infection.

Americans Are Delaying New Car Purchases

But it’s not just safety fears that are keeping them away from the dealership –– it’s economic fears, too: 71% of consumers who were considering a car purchase over the coming three to six months are now reconsidering. Uncertainty about job security is looming in the air, the stock market has plunged, and people aren’t in the monetary or emotional position to make a major financial commitment right now.

Customers Are Concerned About Their Loan Payments

A smaller but still sizable majority of consumers (51%) are even showing concern about their ability to pay back their existing car loans in the next few months. While some consumers are trying to keep up with their loan repayments by cutting down on personal expenses, half are actively planning or have already planned to take financial action to assuage their financial concerns.

Auto Lenders Must Adapt Quickly to Customers’ Needs & Fears

What all this means is that auto lenders should prepare for an influx of deferment, payment freeze, and refinancing requests in the near future. But flexibility is a two-way street, and giving customers some leeway during these difficult times can be worthwhile, both from a moral and practical perspective.

Customers & Lenders Both Want ACH Now

Customers are looking for financial relief and are eager for lenders to come with easier, digital servicing offers. For example, 63% of consumers would set up ACH payment for their loans if their lender gave them a discount or a deferment. Historically, borrowers have coveted this direct debit method, but have struggled to implement it. Now is an opportunity to mitigate the risk of lending through automatic payment setups, while providing for customers’ new needs. Prior to the coronavirus outbreak, customers expressed a strong preference for digital loan applications, and were frustrated by excess paperwork when it comes to loan originations and servicing. Now, customers’ desire for streamlined and easy digital processes has skyrocketed to new levels. A whopping 90% prefer digital/remote interactions with their auto lender vs. face-to-face transactions. It stands to reason that many customers would avoid taking out a loan or modifying an existing one if their demands for remote transactions aren’t met.

Customers Need Their Loan Servicing Digitized and Simplified

Offering customers digitized options for servicing and originations was always important –– with the coronavirus, it’s a must. The good news is, lenders who digitize their customer-facing processes will reap dividends not just now, but into the future, even once the crisis has passed.