‘Fueling’ Auto Lending in 2015
The latest stats are in: auto sales experienced a major comeback in 2014. According to industry experts,1 this was driven in part by pent-up demand delayed by the recession, and also by falling gas prices. Autodata reported that the auto sales for 2014 finished up 5.9 percent from 2013, at 16.52 million vehicles, the best year since 2006.2 The auto industry has much to celebrate heading into 2015 as the growth shows no signs of stopping. How can automotive lenders take advantage of this trend and book more loans? One way is to extend better credit terms to more borrowers. To do that, a thorough understanding of credit assessment is imperative.
With growing competitive and regulatory pressures,3 reaching qualified borrowers requires issuing attractive credit offers while limiting exposure to risk. Consistent and predictable financing is a key element in their growth strategies. Having an enhanced view into an applicant’s credit behaviors allows lenders to make credit decisions that better fulfill the needs of dealers and the end consumer.
As we wrote back in October, to have more confidence in their credit assessment of customers, it will be important for auto lenders to take a new view of credit risk by factoring in additional insight and information from alternative data. Lenders can optimize their borrower approval process by:
- More effectively identify the “fallen angels” – i.e., borrowers with past transgressions that are now on the path to becoming good loan candidates
- Looking beyond credit scores and leveraging non-traditional data for more comprehensive borrower assessments
- Adopting solutions that help auto lenders meet regulatory requirements and fair lending compliance
Auto finance is as challenging as ever, and having more complete information on borrowers can help lenders stay competitive in this environment – driving profitable growth while managing risk through better insight.
Patrick Reemts is Vice President of Credit Risk Solutions at ID Analytics, LLC
1. Fitzsimmons, Tim. Marketplace Business. (2 December 2014) Deals and pent-up demand fuel auto sales. Retrieved January 16, 2015 from http://www.marketplace.org/topics/business/deals-and-pent-demand-fuel-auto-sales
2. Meier, Fred. USA Today. 5 things we learned from Dec. and 2014 auto sales. (7 January 2015). Retrieved January 16, 2015 from http://www.usatoday.com/story/money/cars/2015/01/06/5-things-we-learned-2014-and-december-auto-sales/21314117/
3. Padden, Larissa. AutoFinance News. CFPB Dominated Auto Finance News Headlines in 2014. (23 December 2014). Retrieved January 16, 2015 from http://www.autofinancenews.net/cfpb-dominated-auto-finance-news-headlines-in-2014/