The outlook for U.S automotive financing industry in 2014 is positive. But that doesn’t answer all the open questions before the auto lending industry. In this post, we will try to look closely at some of the recent trends and the open questions before the industry, which must be resolved to achieve sustainable growth in the future:

Regulatory Environment

Last year the Consumer Financial Protection Bureau (CFPB) made it clear that it will provide transparency in the auto financing industry. That only means one thing for the auto lenders – stricter regulatory & compliance requirements. One of the immediate changes the industry might be staring at is regulations to make the “dealer reserve” charges more transparent. CFPB alleges that the dealer reserve is leading to exorbitant markups on auto loans. This may have an impact on the loan origination process.

Borrowers are preferring longer loan terms

More borrowers are opting for longer loan tenures. According to Experian, long term auto loans (in the range of 73-84 months) have jumped by more than 25% in the past year and constitute about 20% of the total new-car lending. The next category of 61-72 months accounts for more than 40% of the total new-car loans. The implication of this trend is that ultimately the borrower is going to end up owing more than the car’s worth for a longer time, which increases the risk for the lenders as well.

Increasing age of cars on the roads

A recent study from Polk indicated that the age of the cars on the road is continuing to rise. In 2013, the average age of the car on the American roads was 11.4 years, an increase of over 18% from an average age of 9.6 years in 2003. Several factors including the recession, increasing gas prices as well as the improving quality of the cars can be attributed to this trend.

For the auto-finance industry, this means two things – fewer people are expected to look for new cars in the future and the trade-in value of the buyer’s old car is going to be insignificant. This may make it difficult for the new car buyer to work the finances within his budget.

Will alternative financing make way into auto-lending?

Prosper already offers peer-to-peer (P2P) auto-loans. Will such new business models and access to such alternative financing have an impact on the more traditional auto-lenders? While the impact of such new business models is yet to be seen in the auto-financing world, it may not be too late before we witness it, especially if the traditional auto-lenders don’t relax the restrictions on the loans.

Taming the True Cost of Collections

Costly. Complex. Time-consuming. These are just a few of the challenges companies face when trying to collect on non-performing loans and leases. Collections are a major strain on finance businesses worldwide. In the US, a company with a 5% net profit and $100,000 in...

Small Business Lending: A For-Profit Business

There is nothing small about small business.  There are 28.8 million small business in the United States, and small businesses make up 99.7 percent of all businesses in the country.  Small businesses are the engine that drives our economy, so ten years ago when our...

Winning Over Resistance to IT Changes

Finance organizations worldwide are struggling with aging lending and leasing systems. They have read much data and various case studies showing how new systems can improve operational efficiency, increase competitiveness and integrate with the third-party solutions...

Two Readily Available Solutions to Expand Funding for Smaller Businesses

Small and mid-sized companies are vital to the prosperity of the U.S. economy. Yet many struggle to secure the financing needed to grow their businesses. Access to financing has improved to some extent in the recent years as have the options with the influx of online...

Asset-Based Financing Models Can Narrow Funding Gap for UK SMEs

The shortage of affordable finance options for small and medium-sized enterprises (SMEs) in the UK has received widespread attention, and rightly so. The data trends are especially disturbing given the importance of small business sustainability and growth to the...

Chrome Capital – National Leader in Motorcycle Leasing

Chrome Capital, national leader in motorcycle leasing, offers 2, 3 and 4 year term leases for new Indian bikes and pre-owned Harley Davidson bikes via an innovative motorcycle leasing product, TestRide®. Chrome Capital was limited by their previous simple servicing...
Load More

Get help from the industry's lending experts

For more information, ask a question or to request a demo, contact us.
Please Complete All Fields