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Auto Lending And Its Simplification

August 19, 2019
Auto Lending And Its Simplification

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Complexity Involved In Origination In Auto Lending And Its Simplification

The loyalty of the carmaker plays only A modest role in the success of the automobile business. It also depends on several other factors such as:

·         Quality of the vehicle

·         Providing end-to-end offerings

·         Balancing supply and demand

·         Exceptional customer satisfaction

·         Servicing of product and most importantly

·         Financing a purchase.

While all others play a significant the role, perhaps the most important thing is auto financing.


The Auto Loan Market

The auto lending market has always been flourishing and has been playing a significant role in the development and consistency of the country’s economy.

·         More and more banks and financial institutions, alternative lenders are constantly on the lookout for ways to make them offerings easy, fast and affordable for the consumers.

·         Add to that, the dealerships also offer additional services to make arrangements for car loans for their clients. They do so in collusion with auto financers and insurance companies as well to make the buying process of the consumers as smooth as possible and meet with all their needs.

·         With the increase in car demand and thereby in auto loans, it has also created a huge opportunity for the captives. In spite of the fact that it essentially requires better relationship management capabilities, building new sales prospects and challenging executives, they have built a well-established model for car loans and leases.

This market has been ever-evolving, always for the better of the lenders, the consumers as well as the economy of the country. However, there are lots of complexities involved in the loaning process especially with regards to the loan origination processes.


Origination Of A Loan

Historically the process of initiation of a loan, called loan origination in the finance market, has rarely been relished by the consumers. Why? This is because it typically involved:

·         Reams of paperwork

·         A lot of supporting documents for income and identity and

·         Long wait time for approval.

Fortunately, things started to change of late and now you can even get a loan without having to visit the bank or the office of the lender physically. You can, in fact, avail a car loan now from the comfort of your home, thanks to the online money lending sources such as Liberty Lending and others. What is more, you can even get a loan at the car dealership itself.


Approach Of Auto Retailers

The experts in the industry have pointed out a few dramatic and disruptive changes in the automobile lending industry. They say:

·         With such changes in the auto financing sector, the approach of the auto retailers has also started to change. They now look into adopting more customer-oriented Omnichannel retail models.

·         In addition to that, with the entry of new players in the auto lending market particularly the fintech companies the scenario especially in auto loan origination, has changed significantly. With better lending models created by them, a consumer now can have better lending experience.

·         With such addition of players, a lot of competition is infused in the auto lending market. The players are now looking to improve their service, establish a better and stronger relationship with the clients and creating lending models that are faster, simpler, and smoother.

The experts also predict that there are more changes that are coming up in this specific lending segment that will raise the level of lending experience of the consumers by several points.

They expect that in the near future by the time a customer purchases their own autonomous cars in future state 3 it is highly likely that the dealer interaction will have shifted to a highly customized showroom experience.


Need For Digital Authentication

In order to keep up with the ever-evolving auto lending market the auto finance companies must make it a point to offer an origination process that is far better and simpler to match with the mobile loan generation process that offers a near-instantaneous approval. The only probable solution available to the auto finance companies is to secure digital offerings and acceptance, authentication and approval.

·         This approach will help them to deal effectively and proficiently with the cost of capital factor. This happens to remain one of the most important drivers of profitability for the finance companies in all future states. However, it is vitally important in the future states 2 and 4 of the commercial market.

·         It will also help the auto finance companies to focus on the more sophisticated fleet operators to finance their vehicle needs thereby enabling them to raise their business volumes and profit margins significantly.

However, this is not an easy process and will only happen when the auto financing companies leverage their offers and improves their service process in a sufficient scale. They will need to consider several aspects of financing so as to gain more businesses such as:

·         Leveraging to command price reductions

·         Narrowing the margins compared to the retail loans of today and

·         Have considerable knowledge regarding the risk profile that needs more capital.

In this given market scenario, those auto financing companies will be better off in terms of making a profit that:

·         Have a comparatively low cost of capital and

·         Are able to bring in subvention from the original equipment manufacturer.

That means in practical terms banks are likely to have more advantage of the situation because they are the ones that can draw low-cost deposits on their own.

On the other hand, captives will be most likely to receive a marginal subsidy from the original equipment manufacturer as they are typically known to borrow comparatively costly commercial papers.These subsidies will help the captives and the dealers both to keep up with the demand for the vehicle, in case it is necessary.


​​What next?​​

So now that you have the finances for your new ride all looking good, why not get a bit of seat-time under your belt in some different cars by heading over to drifted.com's car games page. We particularly recommend the Madalin Stunt Cars series and driving some of the amazing supercars on there.


The Final Thought

The role of secur​​itization is very important in today’s auto lending scenar​​io. This helps auto financing companies to support the cost structure. Since the lending capacity, especially

for the captives, will continue to be critical when it comes to consumer-oriented financing, securitization is the key though it has been unusual in commercial lending.

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