eLend Solutions recently conducted a study of the vehicle purchase process, comparing initial payment terms quotes to auto lender decision data. Pete MacInnis, founder and CEO of eLEND Solutions, joins us in today’s episode of CBT Now to discuss the study’s findings.
Dealers typically use outdated “credit tier” models based on FICO scores. For example, a customer with a 720 credit score will be placed in Tier 1 rates, while another client with a 680 score will be placed in Tier 2.
However, most modern lenders have moved to dynamic pricing models that take into account multiple attributes such as:
- Credit score
- Revolving debt
- Debt-to-income ratio
- Payment-to-income ratio
- Loan-to-value ratio
- Auto pay status
- Existing customer relationship
To assess the impact of outdated quoting methods on deal outcomes, eLEND Solutions analyzed thousands of credit applications submitted to over 100 auto lenders. Nearly one-third (32%) of applications were approved, and of the approvals, only 1.6% matched the consumer’s original terms regarding monthly payment, loan term and down payment. Ninety-eight percent of deals required adjustments to at least one key element to be approved. MacInnis emphasizes how these discrepancies can have ripple effects, including frustrating customers, adding friction to the F&I process, delaying deal closings and creating challenges for dealers in maintaining their profit margins.
"We’re not trying to scream Armageddon or blame the industry, we’re just saying, 'Hey, this is what the data is telling us.'"
Upon further investigation into the data, eLEND Solutions found that the average lender-approved monthly payment for used vehicles was $36 higher than the initial quote. This payment inflation can make it more difficult for dealers to add backend products.
eLend Solutions is launching a follow-up industry survey for dealers, lenders, F&I professionals and agents to validate the findings with real-world sentiment, understand the financial impact on front- and back-end gross and quantify how many lenders.
The quick, five-minute survey can easily be completed and aims to bring critical visibility to how quote-to-approval mismatches affect the retail process.
