Five Questions to Ask When Choosing an Auto Lending Enablement Solution

Of the group of U.S. automotive lenders Open Lending surveyed for our recent Lending Enablement Benchmark study, 65% indicated they use a lending enablement platform. But over half of the respondents were only “somewhat” satisfied with their existing solution.

Amid volatile economic conditions, Lending Enablement Solutions offer automotive lenders a way to increase and diversify loan volumes while combatting risk. But not all Lending Enablement Solutions are created equal. If financial institutions want to maximize their ROA when choosing a Lending Enablement Solution, selecting a provider who understands their challenges and goals is critical. Here, we outline five essential questions automotive lenders should ask before they invest in a Lending Enablement Solution.

Is the solution provider an expert in automotive loans?

Accurate underwriting depends on the context and data available. It’s not enough for Lending Enablement Solutions to be powered by AI. They should also be backed by rich data that can only come from decades of experience in the automotive lending industry.

For more than 20 years, Open Lending has focused on automotive lending, specifically on expanding automotive loans for near-prime borrowers. Lenders Protection™ uses this expertise by incorporating data from over $18 billion in automotive loans and 2 million risk profiles to empower automotive lenders to serve more creditworthy borrowers. Our experience is more than a perk for automotive lenders — it’s a promise of accurate lending decisions while mitigating risk.

How will this solution help me serve more borrowers while remaining profitable?

The common approach to determining borrower potential and structuring a loan is to account for stats like FICO scores, income and employment history, and debt-to-income ratio. These reductive stats often paint a one-dimensional picture of a borrower and excludes many deserving near-prime borrowers.

Lending Enablement Solutions can open a broader borrower pool by harnessing alternative data points, including rental history, mobile phone payments, and account balances.

Near-prime borrowers are often viewed as too risky or more prone to delinquency. But as near-prime experts, we know that when automotive lenders use Lending Enablement Solutions, they are more likely to pinpoint near-prime borrowers with ideal borrower behavior. Lenders Protection™ analyzes the broadest range of rich data to determine more near-prime, high-yielding opportunities for automotive lenders while mitigating risk.

How much does the solution cost, and how easy is it to implement?

Time and money are of the essence in automotive loan decisioning. Borrowers expect to know if they’re approved as quickly as possible, whether at the dealership or their community credit union. It’s in the interest of both parties — lender and borrower — if decisions are made quickly and if Lending Enablement Solutions can be implemented easily.

Investing in a Lending Enablement Solution is a long-term commitment with wide-ranging effects on your bottom line, so the initial costs and implementation should be hassle-free. Open Lending’s Lenders Protection™ requires no up-front costs and works alongside existing systems. With Lenders Protection™, users can implement the platform in 30-60 days without purchasing additional software. Our approach is purely success based — Lenders Protection™ is free to try, and any fees are recouped in the interest rate to the borrower on funded loans. 

How does the solution mitigate risk?

Lending Enablement Solutions should operate on as much data as possible to deliver the most informed score. If a Lending Enablement Solution promises to increase loan volume but doesn’t offer insight into how it does so without increasing your risk, it should be a red flag to automotive lenders. The data being analyzed should be accurate and thorough, but since no one can predict the future, the solutions should also be smart enough to help automotive lenders balance opportunity and risk. Open Lending is confident in the accuracy of the Lenders Protection™ scoring model, but to double down, we provide third-party loss protection for even more lender security. This type of insurance goes beyond typical default insurance and absorbs more than 85% of expected deficiency balances.

What does the solution deliver beyond a score?

Automotive lenders need a tool that goes above and beyond human underwriting capabilities or baseline risk scores. For a Lending Enablement Solution to be worth the investment, it should provide end-to-end insights into borrower potential, risk-adjusted pricing, and loan structures.

Lenders Protection™ uses extensive proprietary and third-party data and analyzes 2 million risk profiles in as little as five seconds. Our risk-based model predicts the probability of prepays, defaults, and default severity. Automotive lenders don’t just receive a score; they receive a score plus an approved or countered loan structure, risk-adjusted price, and default protection.

Feel Confident in Your Lending Enablement Solution

As more Lending Enablement Solutions come to market, automotive lenders are tasked with determining the providers who can back up their claims of more loans, less risk — and those who aren’t delivering anything more unique than a credit score. Look for a solution and provider that can work seamlessly with your existing systems and processes to identify borrowers who you may have previously overlooked. With solutions like Lenders Protection™, automotive lenders can serve more near-prime borrowers and feel confident in their decisioning thanks to Open Lending’s experience, expertise and commitment to risk mitigation with third-party default protection.

Check out our Opportunity Calculator to see how Open Lending’s Lenders Protection™ can impact your own operations.