Indirect auto lending is not only a convenient way for financial institutions to increase loan volumes, but it’s also a convenient way for members and customers to obtain financing directly from a dealership. However, there are risks associated with indirect lending programs and items that the financial institution must be aware of before jumping in. The financial institution should outline expectations and have consistent communication with participating dealers to ensure the program is being administrated in accordance with the guidelines set in place at the beginning of risk management.
We’ve outline 5 tips that every bank and credit union should consider when establishing an indirect auto lending program. These are also great to fine tune your current processes to ensure that both parties are happy and there is minimal risk associated.
Indirect Auto Lending Tip 1: Technology
One size does not fit all; process and flexibility are important especially if you would like your financial institution to stick out. The loan origination system must be flexible and easy to configure. If your organization is in the process of purchasing a new loan origination system, be sure to ask about flexibility and configuration.
Indirect Auto Lending Tip 2: Dealer Management
Outline what it is that you want from the relationship before your step foot on the dealership. Be direct and to the point when talking to the decision maker. Ask what you need to do to get their business while also telling them exactly what you’re looking for from them.
Indirect Auto Lending Tip 3: Underwriting
Stipulations can be a real annoyance for dealers looking to close business quickly. They are meant to protect the lender on high risk loans but can be frustrating on low risk loans. Strict stipulations can often be time consuming for the dealer and may make it hard for your organization to find dealerships to partner with.
Indirect Auto Lending Tip 4: Processing and Funding
Be sure the program guidelines and decisions sent out to the dealer are very specific and easy to interpret. Dealers need to know if you allow back end products to be added or if they are included within the approval. It’s also important to let them know if you require proof of income for both borrows. Loans can be delayed because the dealer misunderstood the approval, the stipulations provided, or the program parameters.
Indirect Auto Lending Tip 5: Reporting and Consulting
Access to data and advice should be readily available. This includes both quality and quantity when it comes to reporting. This is where the expertise of your outsourced indirect lending solutions provider really makes an impact. Your provider should be available for regular meetings where everyone sits down together and runs through every aspect of the lender’s program from both the quarterly as well as the year-to-date perspectives.
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