Auto financing fraud is a fast-growing problem. The lack of digital processes and the reliance on physical paperwork make it easy for false information and stolen identities to pass.
Fremont, CA: Auto financing has faced unique challenges around payment collections, volume, and rising prices over the past few years. We examine the challenges auto lenders face today and offer suggestions for coping with the volatility:
Car Loan Fraud
Auto financing fraud is a fast-growing problem. The lack of digital processes and the reliance on physical paperwork make it easy for false information and stolen identities to pass. Most common auto loan frauds are;
• Document Fraud: Customers with poor credit scores inflate their income or falsify residency and employer information in order to get approved for an auto loan.
• Identity Theft: Scammers steal the identities of people with good credit scores to obtain auto loans in their name.
• Synthetic Identity: A credit profile is created by using a child's Social Security Number or fabricating it.
Invest in front-end technology that simplifies the entire application process into one digital platform in order to prevent car loan fraud. Auto lenders will also benefit from online applications by increasing efficiency and improve the loan application completion rate.
Rising Interest Rates
Interest rates on auto loans and average monthly payments are expected to rise. Higher interest rates makes borrowing more expensive, which could lead to more people purchasing used cars instead of new ones.
There is an opportunity for auto loan lenders to promote refinancing in this environment. Refinancing into a new auto loan with a better rate may be a good option for borrowers whose credit has improved since they first acquired the loan.
Affordability
New and used vehicle prices have been higher due to rising interest rates since a drop in production during the pandemic caused a mismatch between supply and demand. Now, Americans are feeling the pinch of higher prices across the economy. Most people, including individuals and families, need a car as a necessity, so they must obtain vehicle financing. While this segment of the vehicle market has traditionally been seen as higher risk, it may be time to take a second look. Rising prices for new cars and rising interest rates have pushed some consumers out of reach of affordable monthly car loan payments, resulting in an increase in used car sales.
Competition
Financial institutions and dealer financing have traditionally been consumers' primary sources of auto loans, but fintech players have disrupted the market today. Stay competitive by investing in technology that creates a seamless digital application and account management process. Pre-qualification and checking interest rates quickly appeal to consumers as well. It may be possible to partner with a fintech company for commissions on lead generation while another company handles backend processing. With some financial assistance, these borrowers may be looking to refinance or purchase their next vehicle.
