Lightico’s State of Digital Lending in Auto Finance was recently released. The study surveys 1,054 Americans about their experiences and perceptions surrounding their experiences taking out auto loans.
The findings confirmed what we hear over and over from our customers: users have no patience for lengthy and complex paperwork and those clumsy processes are costing lenders valuable business. Pointedly, customers have no qualms about abandoning their auto loan application if the process drags on for too long. The financial stakes couldn’t be higher for auto lenders.
Here are the top findings we gleaned from our survey of American borrowers.
1. Speed and efficiency are king
Buying a new car is stressful enough a decision for consumers: New or used? SUV or Sedan? Premium brand or regular? It usually involves taking on new monthly debt in the form of loans, adding increased financial pressure. The last thing customers want is for the loan application process itself to be a source of frustration. And yet, so often it is.
The Lightico study found that 58% of customers believe an auto loan should be able to be completed entirely online. This is a strong indication of how much convenience is a priority for auto loan applicants.
And while interest rate is obviously the top concern, ease is a close second; 73% of customers listed ease of loan application process as a decisive factor when looking for an auto loan. Noteworthy, customers think that the company issuing the loan is largely inconsequential if they do not provide the ease that customers expect.
2. Low income individuals suffer the most from lengthy processes
The survey found that lower income individuals are 26% more likely to need six or more stips to complete their loan application. Perhaps as a natural consequence, their loan application is notably longer than that of higher income customers (37% vs. 29%). It doesn’t come as a huge surprise that lower income applicants would have to produce more documents, as they are considered higher risk to lenders.
Yet this place a major burden on this demographic, which is particularly short on time. Imagine asking a single parent to run around to find a scanner, fax, or email a medley of documents between responsibilities: If they don’t make it to their shift on time because they were busy hunting down a fax machine, that could cost them their job.
And what’s the cost to auto lenders? Very often, they miss out on these customers, who simply drop out of overly cumbersome application processes and go with a faster competitor instead (more about this later).
3. Generation Z: Living in a digital world (except when they’re buying a car)
Younger people’s expectations for receiving digital service are high, but ironically they are most likely to be burdened with time-consuming, physical paperwork auto loans compared to their older cohorts. Our survey found that nearly 70% of Generation Z and Millennials expect to be able to complete their auto loan entirely online without involving physical channels at any point.
Unfortunately, a mere 35% of Generation Z (ages 18-24) say that their auto loans are funded within 48 hours. This gap between high expectations for speed and digitalization — a result of having come of age in the era of Amazon — and the reality of applying for an auto loan is huge.
Like lower-income individuals, younger people are riskier for auto lenders to take on. They may have insufficient credit histories, and may lack a stable place of residence or job. Yet by forcing these time-strapped, digital-first buyers to go through a maze of paperwork, you risk losing them altogether to faster, more tech-savvy competitors.
4. People will abandon their auto loans if time to funding is too long
In all facets of their lives, consumers have more options than ever. And that’s just as much the case in the world of auto finance. According to our survey, excessive time to funding leads customers to drop out of the loan application process. In fact, an astounding 42% of respondents who abandon their loan applications do so because the process “took too long.”
Another 62% put the blame on a poor digital experience, too many touchpoints, and the necessity of going to a physical location — all direct contributors to a lengthy process.
The bottom line: Only a pure-play digital loan application can prevent loan abandonment
Auto lenders who want to prevent borrowers from abandoning their loan applications (representing tens of thousands of lost dollars) need to fully digitize their loan application system. Fortunately, today’s technologies make it easy to collect all stips from a single digital channel, so lenders can both protect themselves from risk and give their customers the fast and digital experience they demand.
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