Fintech's role in auto lending
Fintech has experienced a near-meteoric rise in the last few years, as consumers in the U.S. become more interested in lending possibilities off the beaten path as well as other ways in which technology and finance cross over. Alternative lending, of course, is a major focal point of fintech, but until fairly recently, these new methods hadn't made their way into the fintech universe.
"Alternative lending and fintech are slowly but surely making an impact on the auto loan market."
Let's take a look at how that has changed recently, with such techniques slowly but surely starting to make an impact on the auto loan market - and how alternative credit data could play a notable role in fintech-based auto loans moving forward:
A shift away from tradition
Banks and other traditional lending institutions have kept a firm grip on the auto loan industry for much of its existence. This started to change throughout the 2010s, as credit unions entered the market, and by early 2018, they accounted for slightly more than 21 percent of all auto financing, according to industry data cited by Credit Union Times. Because their competition with banks can be fierce due to the former's oft-larger funding, unions seek advantages where they can, such as embracing the newest fintech tools - as the Charlotte, North Carolina-based Nova Credit Union recently did.
According to CUES, Nova partnered with a firm called Ser Tech to help find consumers with auto loans saddled by interest rates bordering on usury. The credit union then presented refinancing options with lower rates to such individuals. Nova also offered financial counseling to customers with less-than-perfect credit. It might not be long before rival unions start adopting similar strategies.
Fintech also moving to captive
Captive financing firms started using web-based tools like ChannelNet and similar customer-acquisition platforms in the early to mid-2010s, and more recently, some of these lenders began moving their operations entirely online. This allows them to potentially reach a wider consumer demographic than they'd reach if they solely operated at the physical locations of the dealerships that subsidized them.
The opportunity for alternative credit use
Smaller auto sales outfits can be unfairly generalized by the actions of a select few who act in potentially unscrupulous ways. Adopting an alternative credit platform like PRBC Mainstreet could be beneficial in mitigating and perhaps eventually eliminating this perception among consumers, and bolster sales opportunities for independent automotive retailers. By using indicators of financial responsibility that don't always surface on FICO scores - rent, utilities, student loans and similar everyday payments - these sellers can help underserved consumers obtain vehicles and also increase their bottom-line revenue.