Tech innovation drives auto lending performance

Research by global information solutions provider Equifax suggests auto lending is the financial sector which will see the most significant impact from deploying trended credit data, with an anticipated 1.1 million more auto loans either being issued or receiving more favorable terms, increasing the market by 11%.

The agency’s December 2016 Consumer Credit Impact analysis found that trended credit data used alongside a consumer’s traditional credit report could improve access to credit and/or loan terms for up to 1.5 million consumers on an annual basis.

Trended credit data involves using time-series data to assess consumer credit offerings, and allows lenders to extend more finance with improved terms while maintaining the desired risk profile.

Long term data

Lenders use innovative technology to analyse up to 24 months of a borrower’s payment patterns, and develop a historical perspective of specific payment behavior – including scheduled payments, actual payments and past balances.

This expanded, granular view of the consumer gives the lender the opportunity to extract meaningful insights to help predict future behavior around credit.

As an example, one consumer might pay off their balance monthly or pay more than the minimum amount due, whereas another consumer might make only the minimum payment due almost every month, yet still on time. Assuming both their credit histories and loan characteristics are otherwise about the same, including the fact that they both pay on time, the consumer that pays off their balance monthly or pays more than the minimum amount due would typically be considered a lower credit risk based on their trended data attributes.

“Giving weight to how borrowers pay off credit debt puts more power in their hands to manage their credit evaluation.” said Peter Maynard, senior vice president global analytics at Equifax. “New ways of assessing consumer credit behavior through unique insights is something we are continuing to develop at Equifax, and opportunities to expand credit to consumers and mitigate for risk for lenders make these types of approaches solid ones for the entire marketplace.”

Equifax expects an increasing reliance on credit data insights like trended credit data particularly as some industries, like the auto sector, settle into what some analysts view as more of a post-recession norm. For these lenders, it will be vital to leverage as many insights around consumer debt behavior as possible to more confidently assess risk in support of a healthy loan marketplace, the agency says.