How Sub-prime Lenders can Unlock New Customers Using a Cloud-based Digitized Auto Lending Process for Income and Employment Verification


In a recent survey¹, nearly 40 percent of dealers said they still are not investing in more digital resources for their retail and lending processes. Of these groups, approximately 31 percent said they don’t have the resources to invest more, 40 percent said they do not feel comfortable with the technology, and 29 percent said they are actually comfortable with the digital business they’re currently getting.

These dealers and their sub-prime lender partners may want to reconsider, especially in today’s highly competitive environment.

Today’s consumers are savvier than ever before, and they have high expectations when they embark on the car-buying journey. They don’t necessarily compare different lenders or dealers anymore; they compare experiences. With so much of today’s shopping is done digitally, lenders and dealers need to consider ways to provide the level of service consumers expect at every stage of the journey, from finding the right car to financing it.

Digital transformation is more than speed and compliance
It’s no longer enough for dealers and lenders to just adopt digital transformation strategies based on efficiency and compliance reasons. The right tools and resources can significantly impact the bottom line.

In another study of U.S. auto lenders who process over 150,000 automated credit report (ACRO) inquiries for auto loan applications2, data observed a 2.45x increase in loan conversion rates for those lenders who automated income and employment verification. In addition, conversion rates were substantially higher for borrowers with lower credit scores. Which demonstrates that using income and employment can dramatically help borrowers who typically face the most difficulty obtaining a loan. Lenders who leveraged income and employment verification data were, in some instances, able to provide lower interest rates or better loan terms to borrowers across all credit bands when compared to lenders who did not use these resources.

Lenders saw an estimated 19.6 percent increase in profit from growing their loan portfolios, with only a slight rise in interest rates across consumer segments².

Why cloud technology is a significant difference maker
Frankly, few banking institutions or sub-prime lenders have the in-house resources required to integrate automation tools to extract valuable and relevant insights from their data once compiled. However, trusted resources today provide financial institutions of all sizes access to flexible data integration and data access capabilities. Offering multiple delivery options can help lenders quickly adopt an enterprise-wide, standardized loan decisioning framework based on integrated income and employment data from a single verification source.

Many financial institutions have mounds of data in their arsenal. When deciphering data points for advanced risk models, lenders are frequently left asking a lot of quest: How can I bring internal data together with up-to-date information from third-party data providers to create a comprehensive view of the loan applicant? And once that data is compiled, how do I best use this data to uncover insights for loan affordability? How can I act to make sound decisions and reduce risk? How can I use this data to convert more loans?

Cloud technology can enable the purchasing experience consumers have come to expect by providing lenders with a quick but comprehensive view of borrower affordability, by removing data silos or the technical barriers between data sets. Eliminating the cumbersome process of lenders pulling data from multiple sources to get a complete picture of a borrower. By bringing these data sources into a cloud-based environment, data can become a seamless, globally distributed data fabric, enabling lenders to combine data in new ways, unlock novel insights and ultimately foster a better experience for borrowers and helping financial institutions grow and protect their business.

Identifying and unlocking new customers
By incorporating automated income and employment data, auto lenders have the ability to unlock new market of consumers, that would be overlooked otherwise. According to recent studies2, nearly 20 percent of all consumers with a sub-prime credit score today are considered financially durable; in fact, among consumers with a modest 580 credit score, 10 percent have estimated total household income over $178,000 —pointing to an untapped market of potentially attractive customers. Yet according to auto trends data collected as of November 2021, only 16.6 percent of auto loan and lease accounts were issued to sub-prime consumers—the lowest October year-to-date sub-prime share since 2010.

Digital transformation strategies combined with today’s leading cloud-based data analytics are helping dealers and lenders go beyond efficiency and compliance. It’s unlocking new opportunities for business growth. While traditional credit scores remain a strong indicator of creditworthiness, today’s consumers may be more complex. Leveraging alternative data sources in the decisioning process, such as income and employment information accessible via cloud platforms, can broaden the pool of potential consumers for lenders, leading to more conversations and potential conversions.

¹: Equifax online survey presented to 2,500 U.S. auto dealers and lender professionals; June 2022.
²: “Improving Loan Conversion Rates With Data”; Equifax white paper report; August 2022.