The auto loan market has been undergoing significant changes in recent years, driven by the increase in applicants seeking loans and conducting online research to compare vehicle prices and loan rates. In this highly competitive landscape, lenders have the opportunity to stand out by adopting the latest industry trends and taking advantage of emerging technologies. As we move into 2023, technology transformation is expected to continue to shape the auto finance industry.
The digitization of processes has proven advantageous for creditors compared to those who still rely on manual methods. Accelerating digitalization, driven by the global pandemic, has enabled contactless interactions and transitions between dealers, lenders and borrowers. This has resulted in faster and more efficient loan origination processes, while reducing the costs involved. Learning from the challenges faced during the economic downturn caused by the pandemic, lenders are turning to automated technologies to streamline their operations while keeping up to date with new trends in the automotive market.
There are three key trends in the auto finance industry for 2023 that will have a significant impact for both lenders and borrowers.
Simplification of online financing platforms
Consumers looking for a new vehicle are looking for lenders that offer easy-to-use websites and transparent financing processes. Transparency and simplicity in online funding platforms are key. Previously, comparing loan terms was a cumbersome process that required a lot of time and manual interactions with multiple lenders. However, today consumers can access this information in seconds and get accurate estimates of loan terms. Modern lenders must adopt streamlined and reliable online systems such as loan origination software (LOS) to facilitate loan structuring, benefiting both customers and lenders with quick decisions and efficient processing.
Use of Artificial Intelligence (AI) and Machine Learning in the car loan process
The use of AI algorithms and machine learning is becoming a growing trend in the auto finance industry. These technologies allow lenders to more accurately assess risk and identify ideal borrowers. Through analysis of historical data, AI and machine learning technologies are able to predict likely outcomes for loans, aiding in decision-making. Lenders can leverage AI and machine learning to identify potential defaulters, detect fraudulent information, assess credit quality using predictive models, and provide customized rates based on borrower profile.
Growing popularity of electric vehicles and green finance
With the growing concern about climate change, electric vehicles are gaining popularity among consumers and, consequently, also in the car finance market. Lenders are increasingly offering specialist finance options for electric vehicles, encouraging the transition to more sustainable modes of transport. In addition, consumers are seeking green loans to finance not only the purchase of electric vehicles, but also the installation of charging infrastructure and other sustainability-related improvements. Lenders can benefit by meeting this growing demand for EV finance and aligning with environmental concerns.
Is it time for change?
These three automotive finance industry trends in 2023 show how technology is driving significant change in this market. As lenders adapt and implement these trends, they can improve their competitiveness, attract more customers and offer more efficient and personalized services.
While these alternative forms of vehicle ownership and driving are in their infancy, they have the potential to bring about significant change in the auto finance industry. Trends indicate that these models will become more common in 2023 and beyond. Therefore, lenders should start considering how to adapt to these trends now.
Do Lenders Need to Embrace These Automotive Industry Trends? All these trends will play a crucial role in the auto loan market in the coming years. However, digitalization and the use of online applications and automated decisions are the most important trends right now as they are already being widely adopted across the industry.
In the near future, it is likely that most auto lenders will use some form of artificial intelligence and machine learning to make decisions and manage loans. Also, it’s time to start considering alternative car loan models such as shared ownership and subscription lending. These models appear to be the future of vehicle ownership for a growing segment of the population.
To successfully adapt, lenders need to be open to incorporating new technologies into their existing systems, aligning with current trends in the auto finance industry. While there are changes on the horizon for 2023 and beyond, these transitions can be accomplished smoothly when lenders work with experienced loan origination system (LOS) providers who understand the latest trends in the auto finance industry.