Category: Lender

Solutions to Mitigate Common Auto Loan Portfolio Risks

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As of the first quarter of 2020, there were 116.46 million car loans in the U.S. In any market conditions, lenders require the right data and insights to effectively manage their loan portfolios. With the current turbulent circumstances affecting auto retailing, jobless rates, consumer debt and nearly every other aspect of the economy, it’s more vital than ever for lenders to ensure they are balancing and protecting their collateral.

Let’s explore some obvious and not-so-obvious areas of risk lenders commonly face over the life of a loan, along with best practices for handling them.

Routine portfolio management: Is it really that routine?

The average term of an auto loan in 2019 was 61-84 months according to Experian data. Once the contract is signed and the consumer drives off with the vehicle, the dealer’s part of the transaction is over, but the lender’s work continues.

We’ll talk later about some of the worst-case scenarios that can crop up during those long loan terms, but let’s start with loans that are quietly paid off on schedule by the consumer.

Even in this “good” scenario, it’s important for a lender to access reliable valuations data to help them securitize the portfolio, assess collateral depreciation and/or estimate its liquidation value at auction. Digital valuation tools can help lenders evaluate which collateral they should maintain to maximize their ROI throughout the term of the loan.

There are also title considerations for every loan, which can require juggling different processes for paper, electronic and owner-held titles depending on the state. This is another area where technology can help streamline the process.

Flat tires and fender-benders: No big deal, right? Well, that depends…

According to Dealertrack data, consumers buy an average of two aftermarket protection products with each vehicle purchased. The dealership does the work of submitting the contract and payment to the aftermarket provider, but it’s advisable for lenders to put a process in place to verify that the aftermarket contracts they fund are actually in effect.

Having the assurance that the vehicle you financed will have minor damage covered by the purchased aftermarket service not only makes you a good steward of protecting the consumer, but of your collateral and your own bottom line, should the consumer decide to trade the car in, and may be owed a refund on the aftermarket contract cancellations – an estimated $4B+ business each year, according to Dealertrack and F&I Express transaction data. We’ll talk more about this in the next scenario.

Damaged beyond reasonable repair:  The pain of total loss…

When a vehicle gets damaged severely enough to be totaled, the workload for the lender intensifies. There are two key areas where technology solutions can help comply with state regulations, protect dealer relationships and consumers, and ensure reliable loss calculations.

Insurance and Salvage Negotiations – In cases where the outstanding loan balance is higher than a vehicle’s market value, it can take 2-3 months or more of back-and-forth including phone calls and redlines on letters of guarantee to determine how effectively a lender will be able to preserve their investment. It’s helpful for lenders to partner with solution providers that can help them stay apprised of their portfolio value and establish an efficient total loss payoff process.

Aftermarket Cancellations – Aftermarket cancellations play an important role in calculating the valuation for insurance negotiations because they affect the deficiency balance on the loan. They are also an important compliance step in the 46 states that currently make lenders legally responsible for timely and accurate aftermarket refunds and loan reconciliation. This is no small amount of money: 2019 cancellation transaction data from F&I Express and payoff quote data from Dealertrack suggest that aftermarket cancellations could potentially reach $4 billion a year or more.*

To repo or not to repo?

Industry statistics show that more than 2 million vehicles are repossessed every year for lapsed loan payments. Although repossession is not uncommon, it is a time-consuming process for numerous lender teams including loan service, collections and titling.

Before the repossession process even begins, having that reliable valuation data is critical to determining whether the value of the vehicle minus the loan balance can offset the expense of taking the vehicle back, reconditioning it, and selling it at auction or retail. Again, aftermarket cancellations are part of that valuation as well because they may help the lender recoup some of the deficiency balance on the loan.

According to 2019/2020 statistics, for every 2.4 cars sold, one existing vehicle on the road will be repossessed each year. That means it’s important for lenders to have the tools in place to make the process as efficient and cost-effective as possible.

Protecting your entire loan portfolio

There are technology solutions available to help lenders guide risk mitigation strategy for every part of their auto loan portfolio lifecycle including aftermarket verifications, title management, valuations, aftermarket cancellations due to payoff, total loss or repossession – and everything in between.

To learn more about mitigating portfolio risk, download our latest insights report.

Why Now is the Time for Auto Lenders to Go Digital

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Over the past several years, the paperwork and manual processes for handling auto loans have been gradually giving way to technology-based processes. But this year has changed everything. In the wake of the COVID-19 pandemic, digital solutions have quickly moved from “nice to have” to “vital” for both dealers and lenders.

Consumers have led the charge: two-thirds of car buyers surveyed said they were more likely to purchase a vehicle 100% online1. Dealers have gotten up to speed quickly: the same study found that 81% of franchise dealers and 47% of independent dealers say they now have a digital retailing solution in place.

These technology solutions help keep consumers and dealership personnel safe while keeping the deals moving – but what role do lenders play? Digital retailing tools work similarly for lenders to initiate a contact-free browsing process that can turn casual shoppers into pre-approved, contract-ready buyers for their dealer partners.

With digital retailing technology helping dealerships work deals virtually and remotely, contracting electronically is the natural next step in the deal process. And today’s customers appreciate the contactless deal experience.

Now more than ever, dealers are relying on their lender partners to support the digital solutions that keep car sales moving. Lenders are embracing technology for driving consumer engagement and expediting the signing, submission, review and funding of dealers’ contract packages. Here are some of the drivers behind many lender modernization strategies.

Digital workflows drive efficiency for everyone — and enable lenders to appear as strong service partners

In the beginning, dealers’ eContracting adoption was driven by a desire to optimize workflow efficiency to counter margin pressure and gain cash flow fluidity. But today, a contactless contract signing process and fast funding are more important to dealers than ever — and Dealertrack data shows eContracting has lenders funding their dealers as fast as the same day. Improving on this level of service helps strengthen dealer partnerships. And strong partnerships can help drive more loan originations.

Digital contract packages are designed for completeness and accuracy, ensuring that no signatures are missed, no calculation errors have been made, and no required documents are overlooked. Dealertrack data shows that eContracting can help reduce returned contracts and lower the rate of re-contracting below 1%.2

And what about office space and paper clutter? With these paperless deals eliminating hefty paper contract packages, the documents are now stored digitally — freeing up office space and lowering storage fees, while still keeping the authoritative contract and digital data readily available in case of audit.

The way forward: matching technology to business strategy

Lenders’ unique financing models and business goals make one-size-fits-all solutions a speculative approach at best. There’s ample opportunity to implement digital strategies that align to a lender’s specific business goals and the resources they have available. The right technology partner will help lenders optimize their processes, drive the online experience consumers have come to expect, and help strengthen dealer partnerships through improved service.

Read more about lender strategies for the new digital car shopper.

.1Cox Automotive COVID-19 Digital Shopping Study, April 4-5, 2020
2Based on 2019 Dealertrack eContracting transaction data

3 Reasons Lenders Shouldn’t Wait to Start eContracting

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Still wondering if you should be using eContracting for your auto loan originations? Let’s examine some of the reasons lending institutions should already be using eContracting or digital contracting.

1. eContracting is the new standard

It’s no longer a matter of if you should be using eContracting: the industry has already hit the tipping point and it’s now a matter of when you’ll start trying to catch up with the early adopters. Lenders who use eContracting are already funding 2-3 days faster on every transaction and building dealer loyalty in the process. Which leads us to point #2…

2. Your dealers want eContracting

Dealers are adopting eContracting in record numbers and demanding that their lenders participate. In their efforts to counter margin pressure, dealerships are shifting their workflows to gain productivity and efficiency. They also value fast funding — and Cox Automotive dealer/lender research shows that it’s one of the top three reasons dealers choose a lender partner. Finally, there is customer demand for a faster and more efficient purchase process, which can be facilitated by eContracting and electronic signing.

As every lender knows, partnerships with dealers are measured by service, so helping your dealers improve their workflow and funding them as quickly as possible is exactly the kind of service that can help improve your relationships.

3. The paperless deal offers operational efficiencies

The industry is headed toward the paperless deal to improve efficiency and reduce overhead costs for dealers and lenders alike. eContracting can reduce days in transit from the dealer to the lender from an average of five days to just one, and its built-in accuracy features can help reduce returned contracts and re-contracting by 80%.

The paperless deal saves dealers from having to reprint forms that change, eliminates shipping costs, and allows for digital document storage that frees up office space while helping to keep forms available in case of audit.

Taking another evolutionary step further, going paperless leads to enabling lights-out funding. With eContracting doing the validations and eContracting producing electronic documents, the next opportunity is to use technology to auto-fund contracts the way loans are auto-decisioned today.

Want to learn all the reasons why now is the time to start eContracting with dealers? Join us at AFSA on Thursday, February 13th where Andy Mayers takes the stage to discuss Digital Contracting during the Technology Advancements program—or stop by booth #104.

The Recipe for Funding Auto Dealers Faster

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The old saying is that too many cooks spoil the broth. But when it comes to finding ways for lenders to handle large volumes of paper contracts until the auto industry fully transitions to electronic contracting, some extra help in the “kitchen” can make all the difference.

Taking the measure of the industry

Today, the auto retail industry is rapidly ramping up technology to meet the consumer expectations. Research has shown that 83% of consumers want to complete at least one purchase step online, yet nearly 90% still prefer to sign their final documents at the dealership.

That leaves lenders with a small number of dealers submitting contracts digitally, while the majority still mail in paper contracts. This can cause lenders to develop two divergent sets of processes that can increase the time it takes to process and fund auto loans.

This situation creates some dilemmas for lenders. One is that any efforts to create parallel processes to maximize speed and efficiency for both electronic and paper contract processes will likely become unnecessary within the next few years as consumers and dealers become more open to fully digital deals.

Another consideration is that all dealers want fast funding, regardless of whether they submit contracts electronically or on paper.

The recipe for success

Efficient paper contract processing and funding requires carefully weighed portions of accuracy and compliance at every level of workload.

The ingredients include:

  • The ability to handle same-day processing of all funding packages
  • Be able to appear to dealers as an “overnight” funder
  • Consistent turnaround time no matter the volume of contracts
  • 99% data accuracy at all times
  • Balanced operational costs and staffing

The right partnership can provide all of those and more to help you provide a five-star experience for all your dealer partners.

Want to learn more? Connect with a Dealertrack Lender Solutions expert to discuss the best options for your business.

Stay Nimble and Accurate When Funding Loans

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Auto lending is a valuable service for dealerships, with 85% of new cars purchased in 2018 financed rather than purchased outright. Dealers require fast funding to stay cash flow positive, so it’s important for lenders to strive for the quickest possible turnaround.

Every day, lenders must perfect the juggling act of staying competitive through speedy funding while still focusing on accuracy and compliance. But if you think of day-in-and-day-out contract processing as juggling sandbags, peak loan volume months are more like juggling torches.

That’s when the combination of digital and paper contract processing can strain the resources of even the most efficient lending operation and its staff. When you’re facing a significant increase in volume, it become harder than ever to maintain compliance with state and federal regulations while trying to speed up data entry without introducing errors.

Finding the balance between accuracy and speed

Before you can maximize funding speed, it’s important to figure out how and where your processes might be slowing things down. When it comes to processing paper contracts, most lenders find that manual data entry, validation and storage of documents are where things get off-kilter.

Working with a reliable technology partner to handle these tasks is a cost-effective way to increase your speed to fund without sacrificing accuracy or compliance.

Want to learn how? Download our eGuide.

Expedite Contract Processing Regardless of Workload

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eContracting has made it so indirect auto lenders can process contracts and fund their dealers faster. Unfortunately, many dealers haven’t given up the paper contracting habit yet, so lenders must find ways to beef up their contract processing on two fronts.

It can be a challenge for lenders to deliver faster funding for paper contract packages, especially if their in-house operations are set up for a certain level of processing volume.

Lending institutions can find themselves understaffed for peak car buying season, but reluctant to scale up permanently knowing that their loan volume will ebb and flow. Still, lenders must find a way to receive contracts, accurately enter all the data into their system, finalize the funding package, get the package through review and approval, and store all of the paperwork for the appropriate period.

The resources required for this process vary depending on the size of the lender, but the workload fluctuates regularly either way.
So how can a lending institution maximize their resources to keep loans processed efficiently?

One solution that many lenders turn to is a partnership with outside experts who can handle the contract submission workflow and help lenders stay flexible and improve their efficiency and profitability. This support team can facilitate both paper and eContract processing to give lenders optimum workflow year ‘round.

Want to learn more about optimizing your operations to deliver better dealer service? Download our eguide or schedule a no-obligation 1:1 consultation with your Lender Solutions Specialist today.

How Lenders Can Get the Lion’s Share of their Dealers’ Loans

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What’s the number one way for a lender to add value for their dealer partners? Faster funding.

In today’s automotive marketplace where profit margins are crunched and sales have plateaued, auto dealers are looking for ways to free up cash flow and preserve their bottom line. Naturally, they prefer to work with lender partners who can be part of the solution.

Building stronger dealer relationships

According to recent industry figures, around 85% of all automobile purchases are financed. Dealers rely on the cash flow from these deals to keep their inventory numbers up so they can continue selling cars. Lender partners that are fastest to fund help keep this cash from “floating” on their dealers’ books and free it up to keep the dealership running smoothly.

Supporting both paths: paper and digital

eContracting is slowly gaining ground with more progressive dealers, but the majority of dealers still rely on paper contracts and must overnight their funding packages to lenders. Lenders that can process contracts and fund dealers the very next day – regardless whether the contracts are digital or paper – have a decided advantage.

There are several common obstacles that make it difficult for lenders to achieve consistent next-day funding speed with paper contracts, including speed of data entry, resource gaps during peak volume times, and the inability to increase speed without comprising accuracy.

Available technology solutions can address all of these obstacles and allow lenders to confidently provide consistent funding speed for their dealer partners.

Ready to optimize your paper contracting operations and add value to your dealer relationships? Download our eGuide today!

Faster Paper Contract Processing for Lenders

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The car buying process is getting more digitally connected with each passing year, yet most dealerships are still finalizing purchase contracts on paper. During this time when contract processing is a hybrid of traditional and paperless, it’s still possible for lenders to take some steps that will help them prepare for fully digital contracting.

The value of digital contract processing is easy to understand when you consider the extensive handling and manual data entry that lenders must undertake to process paper contracts. It can take days or even weeks from the time these contract packages ship out from the dealership before they make their way through lender review and approval for funding.

Dealertrack Digital Document Services provides a great solution to bridge the gap between paper and digital for lenders and speed funding. Take a look:


Savvy lenders understand that faster funding is the name of the game for supporting their dealer customers’ need for cash flow to help them stay profitable.

Utilizing Dealertrack as a technology partner helps lenders avoid the time-consuming tasks involved with data entry, validation and storage of paper contracts. Lenders gain efficiency to fund faster and keep dealers coming back for more.

To learn more, download The Lender Guide to Faster Paper Contract Processing.

Dealertrack and the Evolution of Digital Retailing

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Earlier this month, Cheryl Miller, Senior Vice President and General Manager of Dealertrack F&I and Titling Solutions, participated in a keynote panel at the Consumer Banking Association’s CBA Live 2019 conference. The topic was Digital Retailing Evolution: What’s NOW & What’s Next, and Cheryl shared her expertise on digital retailing in the automotive industry and how the technology is bringing lenders and dealers together.

Following are some of the subjects Cheryl addressed during the panel.

How has digital retailing evolved over the past year and where do you see it going over the next 2-3 years?

The trend is toward an end-to-end digital experience that gives car buyers the flexibility to do as much or as little of the deal online as they prefer. This opens up new worlds for dealers when it comes to buyer targeting throughout the customer lifecycle, including advertising, purchasing, servicing and financing.

For dealers and lenders alike, it’s driven by customer demand. The way consumers purchase things has changed, and customers want the car buying process to incorporate conveniences such as shopping online. Our research shows 83 percent of customers prefer to do at least one purchase step online outside of the dealership. Using a digital retailing solution can help deliver a better customer experience that’s in line with what buyers want.

This is not the only way dealers benefit from digital retailing. The traditional retail sales process takes 3 or more hours for the average dealership to complete. Completing steps of a deal online saves an average of 30 minutes. A more efficient process gets deals completed more quickly, which gives a dealership more time to serve more customers. Digital retailing solutions better connect the online to in-store shopping experience due to streamlined processes, less data re-entry and increased accuracy.

The market is growing, in large part due to demographics. By 2020, Millennials (consumers in their early twenties to late thirties) are forecast to represent 40% of car buyers. There are more than 75 million members of this tech-savvy generation, and they’re at the forefront of demand for digital retailing experiences. Eventually we expect to see the 100% digital deal where every facet is handled online. Most of today’s customers still prefer to finalize their purchase at the dealership, but each successive generation will be more comfortable with ordering a car online the way they order merchandise from Amazon.

How are dealers and lenders working together to succeed with digital retailing solutions?

Dealers see digital retailing as an opportunity to connect the online experience to the in-store experience, and ultimately as a way to increase revenue. Our 2018 Cox Automotive Lender Study revealed that 51% of dealers say it is important for lenders to offer digital contracting to complement their digital retailing workflow. Dealers select their lender pool based on rate competitiveness, turnaround time for credit application decisions, and the strength of their relationship with their finance partners. Being able to work with lenders via the same platform they use for other digital retailing functions strongly meets two of those criteria.

Dealers today suffer from margin compression, so they are constantly looking for ways to profitably structure their deals with their lender partners. Lenders should strive to bridge the gap so that dealers understand you are there as a partner and what you can bring to the table to assist on margin compression and the deal structure – at the right rate for profitability. We see that most dealers are looking for qualified customers who meet their lender requirements. Dealers are a critical part of the retail experience, often finding the best financing available with valuable incentives for their customers. We offer solutions to both dealers and lenders that are well positioned to offer consumers choices that lead to a frictionless car-buying experience.

Dealertrack and all our Cox Automotive solutions are fully committed to our vision to digitize the process to procure a vehicle “from contact to contract.” We understand dealers and lenders both play key roles in every vehicle sale that involves financing. A well-planned digital retailing solution gives both of them tools that work together seamlessly.

With 85% of all new cars sold needing to be financed, dealers and lenders do play well together. The dealer works with the lender and for them – as well as for the consumer. The dealer provides the lender an opportunity in the form of a sourced lead, the lender is retained, and they work together to sell cars, to the benefit of both organizations. Partnership here is instrumental between dealers and lenders.

Do lenders need to upgrade to digital retailing tools now or can they wait for the industry to mature?

The answer is “now.” The time for waiting is over because dealers are already engaged in some form of digital retailing – many dealers already use their website for leads, digital media/social strategies, and more. Digital retailing enables dealers to capture more opportunities. Thus, now is the time for lenders to act if you are trying to increase your partnerships with dealers and gain market share and grow originations.

The technology is in demand by dealers. Customers are demanding better service orientation and a solution more akin to other shopping experiences, like the way they buy coffee and shop for groceries and other household goods. It makes sense for lenders to put digital retailing tools in place now, even if there are certain functionalities and features that won’t be fully utilized until the industry matures further. Be ready for what is here now, and it will simply continue to grow. Be ready so you can win in the marketplace.