Feb 22, 2024
We believe that a world in which everyone has access to essential financial services is achievable and critical. For over two decades, Open Lending has focused on developing automotive Lending Enablement Solutions that expand vehicle accessibility, proving that data and technology can and should be used to advance financial inclusion.
Lending Enablement Solutions, like Open Lending’s Lenders Protection™, can reshape lending for underserved individuals, and our data, plus findings from the Filene Research Institute, substantiate this claim, as you’ll discover below.
This blog delves into consumers with an Individual Taxpayer Identification Number (ITIN), a federal tax identification similar to a social security number (SSN) that can be used to access financial services and financing.
The IRS issues ITINs to individuals who are required to have a U.S. taxpayer identification number but don’t have or are ineligible to obtain an SSN. ITINs are issued regardless of immigration status, and individuals must have a filing requirement and file a valid federal income tax return to receive an ITIN unless they meet an exception.
We’ll explore the ability of ITIN holders, according to the IRS, include nonresidents or residents (based on days present in the U.S.) filing tax returns, dependents and spouses of U.S. citizens or residents, and dependents and spouses of nonresident visa holders.
We explore the ability of ITIN holders to access automotive financing and how, like with near- and non-prime consumers, Lending Enablement Solutions are critical to allowing that access while also bringing value to financial institutions.
The financial services industry has experienced tremendous technological advancement over the past 30 years. But has it really changed for the better if not everyone has equal access to these services and capital? Those living in the U.S. without an SSN face multiple barriers to building credit and wealth.
76%
of credit unions offered an ITIN loan program.
72%
of credit unions without an ITIN loan program plan to implement one.
To bridge this accessibility gap, many financial institutions, particularly credit unions and community banks, use ITINs as a verification tool to finance loans for people whose lack of an SSN may hold them back. In a survey (conducted before the pandemic) of 108 credit unions related to ITIN lending, the Filene Research Institute found that 70% offered some form of ITIN lending. While not every credit union offers ITIN lending, the number of credit unions making credit available to ITIN holders has grown significantly over time, and the most common ITIN lending program offered is automotive.
ITIN lending isn’t a new concept, with many institutions having offered these loans for decades to empower more minority households with financial independence and security. Today, ITIN lending serves a growing market of over 21 million underbanked consumers.
In a separate study focusing on ITIN borrowers and their lending experiences, the Filene Research Institute found that, overwhelmingly, respondents had a positive lending experience, with 97% saying they would recommend ITIN lending to family and friends, 96% saying they would use ITIN lending again if the need arose, and 95% saying the program had a positive impact on their lives. However, these programs are not solely altruistic; financial institutions can also drive value for shareholders and consumers from ITIN lending.
Research on ITIN lending demonstrates that financial institutions don’t have to choose between serving the underserved or maintaining a healthy bottom line.
According to Filene, ITIN lending can serve as a large portion of a total lending portfolio, with some credit unions reporting up to 15% of their assets in ITIN loans. Financial viability with ITIN lending programs is equally impressive, with a return on assets at 3.81%, significantly higher than the credit union system average of 0.75%.
Open Lending data shows ITIN applications have averaged an approval rate of 55.8% over the past three years. The percentage of applications institutions eventually book compares favorably to non-ITIN booking rates over the last several years.
When examining loans certified by Open Lending for new and used vehicles over the last several years, our data revealed that ITIN holders tend to have a significantly higher average FICO score than borrowers with SSNs.
Tailoring programs for specific groups, like an ITIN lending program, allows financial institutions to have a meaningful impact that also generates strong returns and substantial value for their business. Reinforcing an ITIN lending program with Lending Enablement Solutions enables lenders to identify creditworthy individuals who would otherwise be overlooked. But Lending Enablement Solutions don’t just distinguish creditworthy individuals; they also ensure lenders offer the most accurate terms and pricing that benefit borrowers and institutions.
We continue to see how closely tied vehicle access is to overall well-being and financial stability. Our 2023 Vehicle Accessibility Report found that 62% of non-car owners felt owning a car would improve their current job performance, and 64% felt having access to a vehicle would increase their earning potential.
The influence of vehicle accessibility on employment and financial mobility opportunities is also evident when looking at ITIN holder vehicle preferences. Our data found that those who secure ITIN automotive loans gravitate toward manufacturers that produce pick-up trucks, which can be used for personal and work use.
According to our data, trucks make up the top five most popular models among ITIN holders, with the Chevy Silverado 1500 being the most popular.
Our data also shows that ITIN automotive loans are overwhelmingly secured through credit unions, which underscores their vital role in advancing financial inclusion in their communities.
Those who secure ITIN loans for new vehicles take out, on average, $6,000 more than those who secure a loan with an SSN. While loan amounts are lower for used cars, ITIN used car loans have a similar spread of $6,000 compared to SSN loans.
Because ITIN holders have higher average credit scores, they qualify for larger loan amounts, hence their ability to afford bigger and more expensive vehicles. The higher average credit score also suggests that financial institutions that offer ITIN lending view ITIN holders as having a lower risk profile.
Open Lending has advocated for underserved consumers who fall outside conventional buyer profiles for over two decades. When lenders look beyond traditional measures of creditworthiness, they unlock value and identify deserving, creditworthy borrowers.
Lending Enablement Solutions enable financial institutions to increase financial inclusion by analyzing broader, alternative data to provide more accurate assessments and borrower potential, which lenders can miss if they rely solely on traditional credit scores or whether applicants have an SSN.
The services and products financial institutions offer must be as diverse as the population, which means they have to continuously innovate and evolve to meet their communities’ most pressing needs.
Our experience in automotive lending and serving financially vulnerable populations has taught us that a true consumer-centric lending experience requires equal parts empathy, accuracy, and innovation, three values that drive us to continue developing solutions that empower automotive lenders to serve the underserved.
Lenders Protection™ isn’t just cutting-edge technology; it helps facilitate financial inclusion — a catalyst for change. Having access to financial services, like automotive loans, fosters dignity, independence, and opportunities.
Over the past two decades, we’ve proved that reaching and serving underserved individuals and communities is not only socially responsible but also financially viable. Doing well and doing good are not mutually exclusive, and we’ve helped hundreds of financial institutions exceed each of these goals.
Interested in learning more about ITIN lending? The Filene Research Institute offers an online learning platform that can help guide your institution in implementing or expanding your ITIN lending offerings.
Contact Open Lending today to learn how Lenders Protection™ can enhance and diversify your automotive lending process and reach more creditworthy ITIN holders and other underserved consumers.
ShareAll fields required
"*" indicates required fields
