Deposit levels are on the rise in 2021, and for lenders looking to put that money to work, auto loans have been a familiar place to turn. Both direct and indirect car loans have provided a dependable source of borrower growth, but should financial institutions bank on auto loans to continue delivering? Current signals are pointing in a different direction, and fintech solutions are presenting exciting new possibilities.
Current Drawbacks for the Auto Loan Market
Before we look at some of the current issues in the auto lending market, let’s quickly acknowledge the highlights.
Most American households own at least one vehicle and according to recent data, 85% of new vehicle purchases are financed. There is typically a strong and stable market for car loans.
Additionally, auto loans are less complex. They are typically underwritten and approved quickly, sending satisfied borrowers off with keys in-hand in a matter of hours. That is … when there are vehicles to buy.
In 2020, vehicle sales plummeted during the pandemic as automakers shut down and the pandemic wrecked supply chains. But as vehicle demand rebounds in 2021, supply chains have not caught up. A global microchip shortage is leaving dealership parking lots with empty spaces as auto manufacturers stall the production of many types of new cars.
But, even if the chip issue is resolved in the near future, there’s another downside to consider: borrowers that join financial institutions to obtain auto loan financing tend to have a more transactional relationship.
The relationship often ends when the borrower pays off or sells the vehicle, at which point they shop for the next best rate. This customer churn cycle becomes inefficient and costly, requiring lenders that rely heavily on auto loans to work aggressively to replace lost customers.
Why Home Equity Lending Meets the Moment Today (and Tomorrow, Too)
If 2020 was the year of the home refinance, 2021 is the year of home equity. Homeowners have found themselves with a surge in home equity while at the same time, lenders growing deposits need to be redeployed. Is it time for financial institutions to pivot to home equity lending?
But wait, you say. Home equity loans are a whole different beast. There are appraisals, credit histories, flood certifications, pulling titles and various other documents, notarizations and mailing documents off to the courthouse. The turnaround time is much longer. It’s just not that simple.
This is the part where I excitedly interrupt to tell you that yes! Home equity loans can be simple! How do one-click HELOCs and home equity loans cleared to close in a matter of days sound?
This year, LenderClose launched its Home Equity Express (HEx) solution that features an intelligent automated workflow. What this means for lenders is that after populating a few basic pieces of information (borrower credit score, mortgage value, and requested loan amount) you’ll click start and launch an automated process that quickly conducts an automated valuation and launches orders for the other required document collection.
No more chasing down documents, visiting different websites, repeated data entry, or organizing and mailing reams of paper. A process that took weeks is now days, and is completed without constant “babysitting.” You’ll get an email when the documents come back, so go ahead and do something else in the meantime. If HEx detects an issue that might hinder approval (like property located in a flood zone) the intelligent workflow will pause, so you don’t incur unnecessary expenses.
Here’s a quick example of the power. A LenderClose client in Washington had an average home equity loan timeline of 30 days. They really wanted to get it down to 20. After incorporating the Hex solution, they started advertising to borrowers that if it didn’t close in 10 days, it was FREE. (That’s pretty confident.)
So, will auto loans fade away? Not a chance. But only a small percentage of financial institution customers have home-backed loans, presenting a huge untapped market. With home prices high and bidding wars abounding, many customers may be priced out of a new home purchase but looking for ways to enhance their current dwelling. Helping them achieve their goals quickly and conveniently is a great way to improve both their quality of life and relationship with you.