The following post is part of a series of blogs written by MeridianLink Partners who will be attending the MeridianLink LIVE! User Forum in May 2023. To learn more about the event, visit https://www.meridianlink.com/userforum.
Open Lending Report Uncovers Opportunity for Auto Lenders To Empower Underserved Consumers
Car ownership can elevate quality of life, making it easier to connect with friends and family and pursue a fulfilling career. But with the cost of vehicles at an all-time high, folks in underserved credit segments face a hostile buying environment. Some are shut out of car ownership altogether.
To gain insight into the vehicle affordability crisis, auto lending enablement provider Open Lending asked more than 1,300 U.S.-based full-time employees: What’s holding you back from buying a car?
Open Lending’s survey aimed to dig deeper into what it means to own a vehicle and how auto lenders can shape their portfolio strategies to meet consumer needs. The findings illustrate persistent affordability issues—and an opportunity for lenders to build relationships with consumers in near- and non-prime credit segments.
Barriers to Car Ownership
In September 2022, Open Lending polled 597 car owners and 750 non-car owners, with 54% reporting near- and non-prime credit scores and 25% reporting prime scores. Analysis of their responses uncovered three key findings.
Finding 1: A lack of vehicle access hinders upward mobility, with over half of non-car owners turning down a better job opportunity or promotion due to not owning a car.
Access to a vehicle gives people more options and control in their professional lives. The opposite is also true: those without cars have fewer choices about where and how they work. Most non-car owners (55%) say they’ve had to turn down better jobs or promotions due to a lack of vehicle access.
Additionally, 62% of non-car owners said a car would improve their job performance either moderately or significantly, and 64% said not having a car impacts their overall earning potential. The challenge is even more acute for those in underserved credit segments, with some reporting negative impacts on their earning potential. Lower-income respondents also reported turning down more job opportunities and promotions than higher-income respondents.
Finding 2: Nearly half of non-car owners across all income levels consider vehicle ownership unaffordable.
When asked why they don’t own a car, non-car owners cite affordability as the top barrier, with 48% of respondents saying they simply can’t afford a vehicle. This data includes even those whose income exceeds the HHS Poverty Guidelines: almost one-quarter of respondents earning between $75,000 and $100,000 per year say buying a car is not feasible.
Affordability issues are even more pronounced among younger generations: 52% of Gen Zers and 50% of millennials say they can’t afford a car, regardless of annual earnings.
Finding 3: Those with lower credit see the lending process as opaque. This perception holds a large segment of consumers back from pursuing auto loans.
For many non-car owners, the loan approval process lacks clarity, with just 11% saying they perceived the car-buying process as “extremely transparent.” By contrast, over one-third of non-car owners (35%) view the process as either “mostly” or “extremely opaque.”
People in lower credit segments are even more skeptical of the car-buying process, with 40% of respondents in the 501-600 range saying the process lacks transparency.
Some survey respondents have disqualified themselves from the lending process altogether: 8% reported choosing not to apply for an auto loan at all because they felt they would not qualify.
What Does This Mean for Lenders?
Consumers want guidance and transparency during the auto lending process. A good experience is a major factor for these folks: 83% of non-car owners said they would return to a lender for other purposes if they felt the lender was transparent and straightforward.
Open Lending’s research signals an opportunity for lenders to create long-term and mutually beneficial relationships with borrowers in near- and non-prime credit segments. By meeting consumers where they are, lenders increase their chances of future touchpoints—such as lines of credit or mortgage loans—with these borrowers as their credit profiles improve.
So, how can lenders take concrete steps to close the auto loan accessibility gap while driving portfolio growth? Leveraging the power of automated decisioning and risk analytics is a great place to start. With the right tools, lenders can engage near- and non-prime borrowers with risk-mitigated loans that meet their unique needs.
Learn more at openlending.com.
About Open Lending
Open Lending (NASDAQ: LPRO) provides loan analytics, risk-based pricing, risk modeling, and default insurance to auto lenders throughout the United States. For over 20 years they have been empowering financial institutions to create profitable auto loan portfolios by saying “yes” to more automotive loans. For more information, please visit www.openlending.com.