Auto financing advances to meet buyers’ changing needs

What can we expect in 2023?

The economy, the consumer, and the automotive industry are sending mixed signals on what 2023 will bring.

Affordability of vehicles continues to be a challenge and demand has fallen in recent months. High inflation and rising interest rates are starting to affect consumers’ behavior and their buying power.

The supply of new and used vehicles is still limited, but availability is improving and used car prices are moderating, which encourages buyers to come off the sidelines. Prices are still higher than in 2019 and as interest rates rise, the market is effectively splitting. Prime and near-prime buyers can afford new vehicles, yet many consumers are cautious about borrowing at current price levels and interest rates. Those with subprime credit may be unable to qualify for financing on a new car or truck, making a used vehicle the better option.

A looming recession could dampen consumer buying enthusiasm and further limit borrowing in both the new and used sectors. For now, consumers have jobs and default rates remain low. Another positive sign is the repossession redemption rate which has remained unusually high as the combination of soaring prices, elevated interest rates, limited supply, and tight credit provide incentives for consumers to stay current on payments and keep the vehicle they have.

Efficiency is the goal.

The dynamics of inflation, rising interest rates, and unusual demand have been a catalyst for innovation and improvements in auto financing. Together, they’ve spurred new, more efficient capabilities that are emerging as best practices for dealers and lenders across the industry.

Getting the best possible financing offer on the table is always important, especially with buyers more wary in the face of an unpredictable economy. And keeping rates and fees as low as possible can help consumers overcome the rising costs of financing.

Putting attractive financing offers in front of potential buyers is only the first step. The verification process—whether for buyers at the dealership or for those shopping virtually—needs to move quickly to keep the customer engaged. E-contracting provides a faster, easier, closing option for time-pressed buyers, streamlining the financing process while improving dealer finance team productivity.

Large dealer groups recognize the value of consumer financing improvements and are using their leverage and scale to press for financing process redesign. Investing in technologies to deliver the best offers to their customers means they’re more likely to close a buying transaction.

Relationship-focused, full-spectrum lenders, like Truist, are taking a leadership role in customer financing transformation, setting a development roadmap to drive improvements and efficiencies across the industry. Though many of the innovations we’re seeing now have been envisioned for some time, the pandemic accelerated the pace of change. As car buyers sought to minimize face-to-face interactions, they essentially pressured dealers and the finance organizations that serve them to drive up auto-decisioning and e-contracting rates, resulting in a simpler and speedier financing process.

4 pillars of effective automation

The drive for effective auto financing technology is currently centered on development in four key areas:

We find automation of these components at varying stages of development as dealers strive to offer customers more ways to shop and buy, to create more efficiencies for dealerships, and to work closely with point-of-sale financing solutions.

Credit prequalification shows a buyer what they can afford based on their credit capacity and helps them divide the total cost into manageable monthly payments. Lowering this barrier keeps an active buyer engaged in shopping and opens the door for dealers to use customer-specific credit information in targeting and marketing potential customers.

Pre-qualification comes in two varieties, soft and hard, depending on whether a credit bureau pull occurs. “Soft” pre-qualification gives a buyer a sense of what they can afford and counts on the verification for confirmation when the buyer moves forward with a vehicle purchase. With a “hard” credit pull, the technology provides a buyer with a firm approval while they’re at the dealership or before they even get there. 

Automating the loan process, both for hard pre-qualifications and for customers ready to buy, improves the customer buying experience and speeds the close of a sale. Lenders continue to develop auto-decisioning capabilities—two-thirds of Truist’s auto loan applications are “auto-decisioned” this way—and are connecting with dealer financing platforms that are digitizing the loan approval process on behalf of dealers. Truist is working with these financing platforms to make automated conditional approvals available. Buyers can then secure conditional financing approval—either on-the-spot at the dealer or before they go there—and can be confident they can secure a loan for the car they want.

Lending decisions necessitate verifying borrower data, and e-verification capabilities are expanding. Truist’s e-verification combines advanced authentication platforms, data sources, and an ever-increasing number of technologies to digitally validate the elements of a loan application and speed the verification process.

For an auto retailer looking to provide its customers with a full digital buying experience, the importance of e-contracting cannot be underestimated. Lenders are fulfilling this need—Truist currently offers e-contracting for prime borrowers and will implement this capability for non-prime applicants as well in 2023. Additional advancements are in the works, making this part of the auto financing process even more scalable while adding productivity and efficiency.

Paving the way for a seamless financing experience

These technology enhancements will enable dealers’ finance and insurance offices to become more virtual.  The result will be that auto retailers can close deals faster, so that more shoppers become buyers.

With e-contracting, dealers can reap savings and finance operational efficiencies by reducing printing and paper used for traditional contracts, which saves money. Digitally signed and transmitted loan agreements can be uploaded automatically, making loan funding available at a faster pace.

While these technology-driven advancements represent an exciting evolution, strong relationships remain at the heart of any successful dealer and financing partner relationship. Staying at the forefront of the consumer auto financing industry allows Truist to serve its dealers’ customer financing needs—a key part of our overall partnership with our dealer clients. We are committed to meeting our dealers where they are today and to anticipating their future needs through automation and more.