Speeding up the F&I process has been a goal of F&I managers for the past few years, and lenders can help. All auto lenders would be wise to use automated-decisioning engines to drive speed and engagement going forward.
Most vehicle loans are auto-decisioned, so lenders that sit out could potentially hurt their portfolios. For credit unions on CU Direct's lending network that use automated decisioning, there is a 93 percent chance that the dealership is going to book the loan with them.
If credit unions send decisions to the dealership even in just one to five minutes, the contract is booked only 65 percent of the time. If credit unions reply in one to 24 hours, the dealership books with them 53 percent of the time.
All lenders have underwriting rules in place, but some should reconsider whether each of the rules is profitable, said Michael Cochrum, vice president of analytics and advisory services for CU Direct.
For example, Cochrum said, if an applicant stated her income was more than $15,000 per month, and the lender has a rule to send any applicant who reports $15,000 or more in monthly income to an underwriter, the application process would slow as an underwriter considers the applicant.
Such a rule would likely be in place to prevent mistakes. An applicant may have written $15,000 when she meant $1,500. But "keep in mind," Cochrum said, "if you have a [borrower with a] 750 credit score [who does] in fact make $15,000 a month and has to wait an extra five minutes," the customer will likely book with one of three or four lenders that approved the application faster.
In the few years that CU Direct has focused on automated decisioning, the number of contracts that were auto-decisioned has increased to make up more than 20 percent of the volume on CU Direct's network, compared with 17.5 percent in 2015.
Cochrum suggests that in most cases, lenders make the automated decision based on the initial application information they have. If there is a question, such as whether $15,000 in income per month was a typo, lenders should ask it after the approval instead of referring the application to an underwriter.
"If your underwriters have to look at 10 applications to approve one, they are missing opportunities to look at marginal loans that you do have greater chance of funding," Cochrum said. "Despite the fact that we want to find the diamond in the rough, we do lose a lot of diamonds by taking the time to manually look at all of those applications."
F&I managers are more likely to book with lenders that they can count on and that share their goals. And one important goal is speed.