This is the second post in our series about ways to improve the auto lending customer experience. The premise of the series is that financing a new car shouldn’t be and doesn’t have to be painful. If you need a refresher, episode one is here.
Financing a Car Doesn’t have to start with a Painful Lending Process
“Income Verification” or “proof of income” is a common step for lenders in the auto financing process. Informed lenders can usually skip this step for the right target borrower since they have access to reams of salary data from millions of documents, from millions of applicants, the results of many years of proof of income stips.
They have access to this salary data and can pull a reliable salary estimate from a wide variety of employers, occupations, credit histories, and geographies. This rich employment data is enhanced with IRS, Department of Labor, US Bureau of Labor and Statistics data and Informed’s proprietary contributory database of 30M+ documentary validations, removing the need to stipulate proof of income. In many cases, Informed returns a more reliable result, since there can be overtime pay, commissions or tips that aren’t reflected on a recent paystub.
In this case, a consumer we’ll call Audrey, comes in to buy a car and needs financing. She states that her income is $133,000 per year working for ITC Holdings. Since she doesn’t have her paystub or required documentation, income verification was required. Audrey’s lender didn’t have the functionality to verify her income against the government’s database so the dealership’s F&I manager had to manually verify her income. Given the importance of dealer satisfaction scores to lenders, this was a perfect opportunity for the lender to make the life of the F&I manager easier by providing tools to aid document and data collection and verification.
As it stood, the F&I manager couldn’t get paid for 10 days because proof of income was missing. The lender was asking the F&I manager to get paystubs from Audrey and fax them back. This is problematic for two reasons. First, the quality of the faxed image is often blurry or unreadable. Second, it’s time consuming. After 10 days of not getting paid, the F&I manager finally faxed low-quality paystubs to the lender. The F&I manager and their customer (Audrey) ended up providing more paystubs than were necessary.
And, Audrey had to make multiple trips back to the dealership to provide the documents to the F&I manager. Furthermore, after the F&I manager faxed Audrey’s income documents over to the lender, he had to wait several days for a call back from the lender to find out whether his fax would suffice to clear the stipulation. After several calls to different contacts the F&I manager was frustrated and the relationship between the dealer and lender suffered. The process ended up taking 25 days to straighten out with multiple contacts.
When it is necessary to collect documents to verify income, dealers simply don’t have the right tools to easily return clear copies of documents and data back to the lender. So the process grinds to a halt – on average 14 days for contracts in transit – but often it is closer to 30 days, with the buyer and dealer left in the dark and a delay in the dealer’s ability to get funded and contracts resolved.
The Better Way
Lenders can enhance their callbacks at Underwriting with tools to clear stipulations and facilitate re-hashing based on updated PTI/DTI. F&I managers would simply instruct car buyers to text-to-upload the documents required to clear the stipulations required by the lender. Car buyers can link their bank accounts, connect to their payroll providers, or upload paystub and income documents.
Those documents are then accessed by the dealer and analyzed per the lender’s policies and procedures to give the dealer confidence that the deal will fund. If the F&I manager has already collected documents from the car buyer, he can send the documents to the lender and Informed will instantly verify the documents and show what defects, if any, the lender identified.
Auto lenders who use Informed see a 2x capture rate improvement by delivering better deal structures and more stip-free approvals. And they see an increase in Dealer Satisfaction scores when utilizing a digital retailing solution – a trend that has only increased in prevalence post the Covid-19 Pandemic as shown in this chart by JD Power. Informed’s Lenders are among those ranking highest in the 2022 US Dealer Financing Satisfaction Study from JD Power.
Lenders also benefit from:
- improved compliance (including with Policies & Procedures and Section 1033 of the Dodd Frank Act)
- reduced costs
- reduced potential for consent decrees by avoiding disparate impact
- educed loss rates by avoiding fraud
- freed up staff to focus on higher-value functions.
You can contact us to learn more or request a demo. If you missed part one of the series, you can read it here: Making the Auto Lending Process Better One Deal at a Time.
Adine Deford is the VP of Marketing at Informed.IQ. She has more than 25 years of technology marketing experience serving industry leaders, world class marketing agencies and technology start-ups.