Evolving Lending Technology Is Reshaping the Way Consumers Transact in Private Automotive Sales

It’s no secret that for years consumers have been privately listing their vehicles for sale on sites like Autotrader, Kijiji, Cars.com and more. In fact, according to the NIADA Used Car Industry Report1, approximately 12 million cars were sold through private party sales in 2018. With an increase in used-car sales2, it can be assumed that private-party consumer-to-consumer sales will also increase. And while millions of consumers have sold their cars online, they’ve always been at the mercy of their buyer arranging financing in order to complete the deal. New technologies today may be changing this in the consumer’s favor – with sub-prime lenders actively involved in the process.

While many technological capabilities are now available to dealerships and finance partners, lending technology historically remained limited for consumers looking to sell their own vehicle. In a private sale, the buyer must secure their own financing independent of the seller, either through their own bank or private party lender. However, there is always a chance that the buyer’s funding may not get approved- requiring the seller to find a new buyer. What’s more, privately selling a vehicle often-times opens sellers up to many risks including theft, misrepresentation and fraud. These situations are also prevalent when transactions take place with sub-prime buyers.

A new series of technological advancements has changed this. Sub-prime lenders today are looking to offer a more effective solution for consumers in both a buying or selling situation. The process starts when a seller lists their vehicle for sale on a website that supports automotive resale. Through lending process management technology, the seller would have the ability to offer their vehicle for sale with financing options that are backed by a lender. Thus, allowing a buyer with less-than-stellar credit to work directly with the lender to purchase the vehicle, without securing financing through an outside vendor source.

Furthermore, because of technology available today, listing aggregating sites such as Autotrader or Cars.com can offer, connect and facilitate lending options to their customers who are selling vehicles on their website. This allows the seller to offer financing directly to the buyer, all made possible through an AI powered software platform that is integrated through the site itself. Not only does this increase customer confidence in the sale, but overall customer satisfaction as well. This technology is enabled through loan origination software that builds out a loan based on a variety of factors, allowing for this “consumer-to-consumer” transaction to occur.

An additional benefit of this process is that buyers can have more accurate conversations with sub-prime lenders about their finances and vehicle affordability. When the buyer is working directly with the lender, they may feel more secure disclosing discrepancies in their finances, rather than providing that information first to a dealer who reports the information back to the lender. Often, when a consumer enters a car dealership, selects a vehicle, and sits down to go through financing, the financing aspect takes the longest amount of time.

Over the past few years, it’s evident that buyers today do not want to spend hours at the dealership shopping and sitting in the finance office. Websites such as Carvana and Vroom that promote buying and financing cars online are increasing in popularity, likely because of convenience. With new options available for buyers and sellers at the consumer level, more consumer-to-consumer transactions can occur.

Through automation and lending technology provided by a loan origination software system, consumers can have a more honest and direct conversation with the lender. Consumer income, dependability, and credit history can more accurately be depicted leaving less room for unaffordable loans in which consumers often default. Automation technology allows for more reliable and secure transactions to occur at the consumer-to-consumer level, increasing private-seller appeal for automotive buyers.

Overall, the implementation of AI-driven sub-prime lending technology will certainly reshape the way consumers transact with one another, as well as the way consumers transact with lenders. It’s possible that such technology will also lead to an increase in consumer-to-consumer private party deals, with more secure transactions leading to customer confidence.

Vladimir Kovacevic is the co-founder and managing partner of Inovatec, a leading software provider to Canadian financial institutions. Inovatec’s products are designed for origination, processing and management of loans and leases across a broad spectrum of credit quality and asset types.