It’s a fast-paced, digital-first world, and consumers expect speed and efficiency in every aspect of their lives – auto lending is no exception. However, according to Open Lending’s 2024 Lending Enablement Benchmark Study, only 5% of lenders are able to decision on an application in seconds, while a staggering 50% are taking hours to days to process an auto loan application. This lag not only frustrates consumers but also diminishes their overall satisfaction with the lending process. As most of us have come to learn, a fast “no” is sometimes better than a slow “yes”. Anecdotally, we have seen borrowers opting to accept an immediate approval even if a slightly better rate were to be available had they waited for a few days.
As we navigate a period of elevated interest rates—recently maintained at over 5.25%—the landscape of auto lending is evolving rapidly. While the Fed’s rate serves as a benchmark, auto loans rates as reported by Experian for new and used vehicles are 6.84% and 12.01%, respectively in Q2 2024.1 Even with the most recent reduction from The Federal Reserve, rates continue to put pressure on lending institutions. On Sept. 18, the Federal Reserve lowered its benchmark interest rate by half a percentage point (to a range of 4.75% to 5%)2 - the first rate cut in more than four years. If the job market remains strong and retail prices on vehicles continue to ease, we could see a significant uptick in retail buying in the automotive sector. This potential surge in demand makes it all the more critical for lenders to adopt new technologies and data-driven decision-making processes now, ensuring they are well-prepared to capitalize on these opportunities.
The Digital Gap
The growing complexity of data available to lenders should, in theory, lead to better decision-making. Yet, without the support of a proven automated platform, this data can become a double-edged sword, slowing down conventional manual underwriting processes further. The result? Lengthy delays that can turn the next potential borrower into a lost opportunity.
The importance of a seamless digital experience cannot be overstated. The 2023 J.D. Power U.S. Automotive Finance Digital Experience Study revealed that only 22% of borrowers are highly satisfied with the digital experience provided by their lender. This low satisfaction rate has significant implications for borrower retention. Among borrowers who give their lenders top ratings for digital enablement, a whopping 95% say they ‘definitely will’ return to the lender’s website or app to manage their account. Contrast that with the mere 60% who say the same when their digital experience is subpar.3 The message is clear: digital enablement is not just a nice-to-have; it’s a critical driver of borrower loyalty.
Shifts Towards Online and The Triple-Win
The trend toward digital isn’t just about speed; it’s about convenience and satisfaction. The 2023 and 2022 Cox Automotive Consumer Buying Journey studies highlight that only a small percentage of buyers completed 100% of the purchasing steps in person, with the majority preferring a more digital approach. Moreover, satisfaction rates are notably higher among those who engaged in online buying processes compared to those who stuck to in-person methods. This shift towards online financing has evolved into a necessity, with only 8% of all shoppers intending to complete 100% of the steps in person on their next purchase.4
The ease of the loan application process is increasingly becoming a deciding factor for consumers when choosing a lender. When consumers can complete all steps of financing online, they save significant time. According to the same report, the year-over-year return on time (ROT) for new car buyers in 2023 was approximately 10.19%, reflecting the reduction in total shopping time by more than 80 minutes compared to 2022.
For lenders, this evolving landscape presents a “triple-win” opportunity. By investing in technology and decisioning capabilities, lenders can enhance the borrower’s experience, streamline dealership operations, and improve their own efficiency and profitability. Consumers benefit from faster, more convenient loan processing; dealers see higher satisfaction and repeat borrowers; and lenders can reduce operational costs while boosting borrower loyalty.
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The future of auto lending lies in the intersection of speed, digital enablement, and borrower satisfaction. Lenders who embrace this digital transformation and invest in the right technology will be well-positioned to achieve the triple-win, driving success for consumers, dealers, and themselves alike. With the potential for increased retail buying on the horizon, the time to act is now—because in the world of auto lending, seconds truly do matter.
1PowerPoint Presentation (experian.com)
2Federal Reserve Board - Federal Reserve issues FOMC statement
3https://www.jdpower.com/business/press-releases/2023-us-automotive-finance-digital-experience-study
4https://www.coxautoinc.com/market-insights/2023-car-buyer-journey-study/