A Rush for Auto Refinances: How Auto Lenders Can Accelerate Approvals

You’ve likely seen news articles announcing that auto refinance volume is up. The Federal Reserve also recently announced it was cutting its benchmark interest rate for the first time in several months and auto loan rates are now expected to edge lower for borrowers. This presents a major opportunity for auto lenders to expand their portfolios and attract a wave of consumers seeking better loan terms.

To capitalize on this trend, lenders need to be prepared with a process that's as fast as the demand. The key is to have the right tools to identify and approve qualified applicants with speed and efficiency, helping you stand out in a competitive market.

Why Now Is a Prime Opportunity

The market is full of potential refinance candidates who could save money by adjusting their loan terms. A recent Equifax report shows there are more than 1.2 million super-prime auto loans (VantageScore between 760 and 850) that were originated in the last 24 months with an APR between 9% and 11%. Additionally, there were 898,500 loans with a VantageScore between 720-759 and an APR between 9%-11%. These borrowers represent a substantial segment of the market that could benefit from refinancing.

The data also reveals that consumers are actively considering their options. According to the report, 58% of consumers with a VantageScore above 680 and an APR above 9% have a high TargetPoint Intent Score, which predicts the likelihood of an auto loan refinancing. These consumers are two times more likely to refinance based on this score.

The Problem With Manual Verification

To capture this market, auto lenders need to have a streamlined process in place. Traditional, manual verification methods can have increased risk and be a major roadblock, creating friction for both the lender and the borrower. This process is often:

• Slow and Inefficient: Manual verification of income and employment may require an underwriter to review documents like pay stubs or W-2s, leading to approval delays.

• Risky: Manual documents can be outdated or falsified, increasing the risk of depending on unreliable information. Many borrowers may have had a change in their income or employment status since their loan was originated, giving lenders reason to verify borrower information.

These challenges can cause lenders to miss out on new business as savvy consumers choose faster, more modern lenders.

Cue in: Instant, Verified Alternative Data

Alternative data, such as income and employment data from The Work Number®, can help auto lenders meet the demands of this market by providing:

• Instant Verification: The Work Number provides real-time access to a comprehensive database of employment and income records sourced directly from employers and payroll providers. This allows credentialed lenders to verify a borrower's information in seconds, reducing the need for the time-consuming process of manually reviewing documents or relying on historic data only.
   

• Managing Risk: By using data provided directly from employers, you can confidently approve loans with highly reliable information, which helps in managing risk.
   

• Seamless Borrower Experience: Minimizing the need for borrowers to find and submit documents creates a frictionless, 24/7, digital-first experience that can help you win new customers and increase your refinance portfolio.

Now, what?

The current market presents a clear opportunity for auto lenders to expand their portfolio. The combination of a more favorable rate environment and a large segment of consumers seeking better terms makes this the perfect time to optimize your lending practices. By moving away from manual verification and embracing instant, verified alternative data, you can improve efficiency, reduce risk, and provide the seamless experience that today's borrowers expect.

Want to learn more about how you can capitalize on current market trends? Check out our recent auto webinar where our experts provide deeper insights and practical steps for optimizing your lending practices.

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