How Subprime Lenders Can Unlock New Customers With a Cloud-Based Auto Lending Process

Subprime auto lenders can help broaden their pool of borrowers by leveraging alternative data sources, such as digital income and employment verifications.

A recent survey revealed that around 40 percent of dealers haven't invested in digital resources for their retail and lending processes.¹ Among them, approximately 31 percent cited resource limitations and 40 percent lacked comfort with technology.

These dealers and their sub-prime lender partners may want to reconsider, especially in today’s highly competitive environment.

Modern consumers are highly savvy and expect exceptional experiences when buying cars. They no longer compare just lenders or dealers; instead, they evaluate the overall experience. As most shopping is now digital, lenders and dealers need to focus on providing top-notch service throughout the car-buying journey, from finding the right car to financing it.

Digital Transformation Goes Beyond Speed

When adopting digital transformation strategies, it’s crucial for dealers and lenders to leverage the right tools and resources that can most impact their bottom line. For instance, a study found that auto lenders who automated income and employment verifications saw a 2.45x increase in loan conversion rates.² This demonstrates how using income and employment data can help those who typically face difficulty obtaining a loan, and in some cases, even enable lenders to offer more tailored loan terms.

Lenders saw an estimated 20 percent increase in profit from growing their loan portfolios with verifications of income and employment, with only a slight rise in interest rates across consumer segments.³

Cloud Technology along with Equifax Application Program Interfaces (APIs) and Integrations are a Significant Differentiator 

Cloud technology can play a significant role in transforming the way financial institutions operate, especially for banking institutions and sub-prime lenders. Many of them may lack the in-house resources to extract valuable insights from their data. However, use of accessible and trusted third-party resources can offer flexible data integration, allowing lenders to adopt a standardized loan decisioning framework based on integrated income and employment data from just one verification source.

Financial institutions often have vast amounts of data at their disposal, but it can be challenging for lenders to decipher it without advanced risk models. They may wonder how to combine internal data with up-to-date information from third-party providers to create a more complete view of loan applicants and how to leverage this data to uncover insights about loan affordability, make sound decisions, reduce risk, and increase loan conversions.

Cloud technology can simplify the process by providing lenders with a quick and comprehensive view of borrower affordability, breaking down data silos and technical barriers between data sets. By utilizing data sources in a cloud-based environment, lenders can more seamlessly combine data, gain novel insights, and enhance the borrower experience while supporting business growth and security.

Identifying and Unlocking New Customers 

Incorporating automated income and employment data can enable auto lenders to tap into an overlooked market of consumers. A recent study² shows that nearly 20 percent of subprime consumers are financially durable. Among consumers with a modest 580 credit score, 10 percent have an estimated household income of over $178,000, indicating an untapped market of potential customers.⁴ Yet according to auto trends data from Equifax, as of February 2023, only 16.9 percent of auto loan and lease accounts were issued to subprime consumers – the second lowest February year-to-date subprime share since 2010. 

Digital transformation strategies and cloud-based data analytics offer opportunities for efficiency. Leveraging alternative data sources, such as income and employment verification information accessible via cloud platforms, can allow lenders to expand their pool of potential consumers, potentially leading to more conversions and business expansion. Traditional credit scores are still important, but considering additional data can better capture the complexity of today's consumers and help lead to more conversations and potential customers

¹ Equifax online survey presented to 2,500 U.S. auto dealers and lender professionals; June 2022.
² “Improving Loan Conversion Rates With Data”; Equifax case study; August 2022 (“August 2022 Equifax case study”).
³ August 2022 Equifax case study.
⁴ August 2022 Equifax case study.