The auto financing industry has encountered distinctive challenges in recent years. This includes difficulties with payment collections, volume, and increasing prices. In this article, we highlight the top challenges currently faced by auto lenders. Read on for suggestions on how to navigate this situation effectively.
Car Loan Fraud
Auto loan fraud is a rapidly growing issue within the auto financing industry. The main types of fraud include:
-Document fraud: Customers with poor credit inflate their income or falsify residency and employment details to obtain approval for auto loans they wouldn’t qualify for otherwise.
-Identity theft: Scammers steal the identities of individuals with good credit scores to fraudulently obtain auto loans in their names.
-Synthetic identity: Fraudsters create new credit profiles using fabricated Social Security Numbers or SSNs belonging to children.
The car loan application process is susceptible to fraud due to its reliance on physical paperwork and the slow adoption of digital processes. This makes it easier for false information and stolen identities to pass through the approval process undetected.
Investing in front-end technology can help safeguard your auto financing company against car loan fraud. Doing this will consolidate the entire application process into a single digital platform. This makes it more challenging for fraudsters to succeed. Moreover, online applications improve auto lenders’ efficiency, and completion rates tend to increase with a digital process.
Rising Interest Rates
Both auto loan interest rates and average monthly payments have been increasing and will likely increase. The Federal Reserve plans to continue raising rates until inflation reaches its target of 2%. Higher interest rates result in expensive borrowing. This will lead to more car buyers opting for used vehicles instead of new ones. Fortunately, the availability of used car inventory has improved this year compared to the lows experienced during the pandemic.
Auto loan lenders have an opportunity to promote refinancing. Borrowers who have enhanced their credit since obtaining their original loan may still be able to save money. They can do this by refinancing into a new auto loan with a better interest rate.
Affordability
Decreased production during the pandemic has led to a rise in the prices of new and used vehicles. This has created a supply-demand imbalance resulting in higher prices across the economy. However, owning a car is necessary for many individuals and families, making vehicle financing crucial for purchases.
Auto lenders can seize opportunities in the used car market. Although traditionally viewed as a higher risk, it’s worth reevaluating this segment. If you’re falling short of your targets for new auto loan accounts, consider implementing a mail marketing or digital marketing campaign. This will expand your reach and enhance conversion rates.
