Latest Auto Finance Trends and Challenges in 2023

Posted Monday, Mar 27, 2023

Couple buying car in Omaha, Nebraska
Online services and digital lending are the two auto finance areas with the most developments in 2023. Research shows digital lending platforms will expand their spending from $10.7 billion to a staggering $20.5 billion by 2026.

These trends include simpler digital financing environments, machine learning and AI for auto lending, and moving to shared ownership models. Let's look at some of the latest auto finance trends in 2023.

Simplified and Streamlined Digital Financing Environments

Today's customers are savvier than before, and they want to be part of the discussion right from the word go. Therefore, modern lenders need a streamlined lending mechanism and loan origination software for loan structuring. Such systems benefit lenders and borrowers.

Modern auto finance application systems help customers make quick loan decisions. A car buyer only needs a few minutes to apply for financing. For lenders, auto finance applications provide faster processing and quicker response times. By automating decision-making, it becomes easier for lenders to approve or deny financing requests from potential buyers.

Auto Lending Through AI and Machine Learning

Another major trend within the auto finance industry is using AI and machine learning to read algorithms. Both AI and machine learning have made it easier to process loans and advances and have made them affordable even for smaller lenders.

In the past, such systems were rare and needed a complete revamping of the lender's IT infrastructure. By using innovative new technologies for making strategies, lenders can now use cloud-based technology offered by reputable LOS vendors.

AI and machine learning make lenders more capable of assessing risk, and ensuring greater accuracy, thus enabling them to identify potential borrowers. The technologies work alongside one another to utilize historical data and predict loan outcomes.

Here are a few things lenders can do with AI and machine learning.

● Determine whether or not an application is on the verge of delinquency.

● Find out if a loan application carries misinterpreted or fraudulent information.

● Determine creditworthiness using traditional and alternative credit data.

● Calculating collateral value.

● Evaluating used vehicles based on historical data.

● Identifying target audiences for various loan types.

● Track approval rates and capture ratios to meet key performance goals.

● Conduct surveys to identify the hidden obstacles within the lender's processes.

● Predict customer behaviors and offer vehicles accordingly.

The Rise of Shared Ownership and Subscription Models

Earlier on, people only had the option to approach a lender for a single vehicle. However, the later structures have given birth to what is now called subprime borrowers. These people cannot afford traditional auto loans, and some cannot even drive. As a result, shared ownership and car subscription models are on the rise.

These models are more suitable for larger cities with congested streets and scarce parking spaces. In such places, people choose not to drive and opt for ride-sharing services and subscription lending models. People need to be aware of unusual ownership models, which are as follows.

● As the name implies, a ride-sharing service provides transportation to people that don't own cars in exchange for payment. Auto lenders must provide special loans to people providing ride-sharing services. A commercial loan is a suitable form of financing for such borrowers. Chances are, lenders may invent a niche and provide loans specific to ride-sharing services.

● The subscription lending model provides a loan to a third-party owner that charges customers using the vehicle. Instead of providing individual loans to borrowers, lenders can offer financing to these third-party borrowers.

● A shared ownership model is one where several customers own and make payments for a single vehicle. The idea is still in its infancy. However, lenders should devise these loans from a monetary and legal standpoint.

With new possibilities, there are some challenges facing the auto finance industry. Some of those challenges are as follows.

Increase in Auto Loan Delinquency Rates

One of the biggest challenges for auto financers is the increase in auto loan delinquency rates. TransUnion handles more than 80 million auto loans in the United States. According to their data, during the third quarter of 2022, the delinquency rate for a 60-day period rose to 1.65%. This rate is the highest in more than a decade. Repossession of vehicles is the only weapon in a lender's toolkit to battle such aggressive delinquency.

Shift in Customer Expectations

The rise of e-commerce businesses and fintech companies has made things challenging for auto loan lenders. Modern buyers have gotten used to the idea of a digital-first eco-system that accommodates their needs and desires. Furthermore, today's buyers put themselves first, rather than pledging allegiance to a specific auto financing company. Auto lenders need to speed up their responses to customer questions while making their payment process easier and more efficient. To make these dreams come true, auto lenders must work on their technology infrastructure, which also doesn't come cheap.

Staffing Issues and Labor Constraints

The US is currently suffering from a labor shortage. As a result, auto financing companies have difficulty hiring and retaining servicing and loan collection agents. Furthermore, the inculcation of the work-from-home work structure, training, performance monitoring, and employee management has become challenging for auto lenders. However, some auto lenders have proactively invested in software to enhance agent productivity. These software programs will allow auto lenders to achieve more with fewer agents.

Final Word

The world has recovered from the pandemic, and all industries are financially recovering too. However, the auto-finance industry is facing several challenges. On the bright side, there are several opportunities auto finance companies can benefit from. If you want to buy a used vehicle or are seeking an auto loan, feel free to visit our website today, Or contact us now. Our professionals work hard to fulfill your financing needs and help you find the car of your dreams.