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 2022. To learn more about the event, click here.
By: Open Lending
High prices for new and used vehicles due to the computer chip shortage continue to pose a challenge for car buyers and lenders alike. Due to pent-up consumer demand, new vehicle prices rose an average of $6,000 between 2020 and 2021, and the average list price for a used vehicle is projected to surpass $30,000 in 2022. Growth in auto loan originations is expected to rise in large part due to expanded underwriting guidelines as lenders extend more loan offers to nonprime borrowers. The Lenders Protection™ program offers a safe way to pursue the nonprime borrower in today’s marketplace.
At Open Lending, we’ve built a lending enablement platform that allows auto lenders to approve more automobile loans, growing their portfolio and profitability in this important consumer lending sector. Within our program guidelines, lenders define their decision criteria and leverage our proprietary data to make sound lending decisions in seconds. Our Lenders Protection™ program integrates loan analytics, risk-based modeling and pricing, and default insurance to expand a financial institution’s ability to serve more borrowers while achieving a targeted ROA for its insured auto portfolio.
The nonprime market is already thriving, and with rising prices and interest rates, many nonprime borrowers feel they have no alternative to Buy-Here Pay-Here lots. As the economy moves forward, financial institutions must consider utilizing alternative data for a more precise picture of a consumer’s borrower risk. Incorporating alternative data, ranging from utilities, mobile phones, and rent payment history, to current income, cash flow, and account balances, can provide a more nuanced and accurate picture of a person’s overall financial health. This deeper insight offers lenders greater access to a new group of credit-eligible consumers who are often overlooked or taken advantage of. Armed with this information via Lenders Protection™ scoring, financial institutions will also be better positioned to anticipate consumers’ needs and offer customized loan products. By leveraging data analytics, auto lenders of all sizes can serve the nonprime market responsibly, enhancing their bottom line while providing hard-pressed consumers a more affordable way to buy the transportation they need.
The higher interest rates charged for nonprime loans naturally yield more revenue for the lender than they get from top-tier borrowers. Lenders Protection™ users generally see 300% to 400% higher net ROA from those lower-tier loans while staying within the unique parameters that each lender sets for their program, and the default insurance offers protection from deficiency balances. If your bank or credit union wants to offer auto loans that are affordable and accessible to lower credit tiers, partnering with Open Lending can help your institution optimize alternative data to mitigate risk and increase profitability in your portfolio!
Click here to schedule a time to meet with Open Lending at the User Forum.