How more data boosts lenders' competitiveness

Many auto lenders are in a veritable pressure cooker, faced with shifting consumer demands and ongoing supply chain constraints while trying to find new ways to drive conversion and acquire new customers in an uncertain market.

In today's technology-driven world — where fraudsters have become more sophisticated and consumer expectations have evolved — adapting to the digital shift is imperative for auto dealers.

From saying "yes" to more customers to reducing friction and helping to lessen the chance of fraud, tapping into additional data throughout the lending process can help lenders stay competitive and drive more confident lending decisions along the way.

While acquiring new customers in today's increasingly competitive market may seem like a daunting task, auto lenders can benefit by looking at more than one measure to understand the ability to pay. By incorporating additional layers of data, such as verified income and employment data, auto lenders may be able to unlock a new market of consumers that may have otherwise been overlooked.

According to Equifax data, nearly 20 percent of all consumers with a subprime credit score are financially durable, pointing to an untapped market of potentially attractive customers.

Yet according to auto trends data from Equifax, as of November 2021 only about 17 percent of auto loan and lease accounts were issued to subprime consumers — the lowest October year-to-date subprime share since 2010.

The same Equifax research also shows the leading reasons consumers with subprime credit scores are denied loans are debt-to-income ratio and credit history (which includes credit score) at 33 percent and 23 percent of denied loans, respectively.

While traditional credit scores remain a strong indicator of creditworthiness, today's consumer may be more complex. Leveraging alternative data sources, such as income and employment information, in the decisioning process allows lenders to see a more complete picture of a borrower's ability to pay. This can broaden the pool of potential consumers for lenders, leading to more conversations.

Opening up lending opportunities to more consumers also can bring greater risk. As competitive pressures continue to mount, it's more important than ever for auto lenders to do what they can to protect against the growing risk of fraud.

Though the many ways in which fraudsters attack continue to evolve, in the auto industry much of this can be attributed to income and employment fraud.

In fact, nearly 52 percent of auto loan applicants misrepresent their income by 20 percent or more to increase their likelihood of approval, based on internal data from Equifax.

While there are many ways to access consumer-permissioned income and employment data, verified data can mitigate the opportunity for fraud that can come with relying on applicant-provided information.

In addition to enabling a more complete view of candidates to help lenders approve more consumers, leveraging instant income and employment verification solutions can help to reduce the risk of fraud, enabling more confident lending decisions.

In a market faced with supply chain constraints and increased competition, meeting consumer demand for fast and efficient decisioning is increasingly important.

To stay competitive, lenders need to provide the quick and personalized decisioning process consumers demand — especially as the vehicle-buying process becomes more and more digital.

Rather than slowing down decisioning by having to manually track down information or relying on only one type of measure to understand ability to pay, leveraging additional verified data can help remove friction from the lending process while potentially opening the door to more lending opportunities and mitigating risk.