The auto loan industry has a problem.
While rising interest rates make car ownership increasingly unrealistic for consumers, there also exist many barriers to on-time auto loan payments for those who have managed to finance a vehicle. As a result, automakers and lenders are faced with the challenges of collecting debts efficiently while maintaining fruitful customer relationships.
Lenders need a solution that streamlines the debt collection process without alienating an already-frustrated consumer base, and the answer is much closer than one might think. In fact, it’s just a text message away.
Let’s jump in.
The Domino Effect of Rising Auto Loan Rates
Buying a car is becoming more and more expensive, and keeping the car has proven to be quite the hassle for the average consumer. There are a few reasons for this. Firstly, the Federal Reserve continues to fight inflation by raising interest rates, which in turn makes it considerably more difficult for someone looking to buy a car to get credit at all. New cars typically incur an interest rate of roughly 9% (up from 5.66% last year), and used vehicle interest rates average over 11% (up from 7.7%).
Those who do manage to clear the hurdle of securing an auto loan are met with hefty car notes; the average American pays $765 per month, while 17% of people who took out a loan between January and March of 2023 pay upwards of $1,000 monthly.
Additionally, the chip shortage of 2021 and 2022 led to limited availability and thus severely inflated prices for used vehicles. When prices suddenly dropped at the end of 2022, millions of used car owners found themselves underwater, holding negative equity on cars that had unexpectedly plummeted in value. This, coupled with high interest rates and the rising cost of living, left many unable to keep up with their auto loan payments.
The result? An affordability crisis in the auto loan industry. Auto loan delinquencies are at their highest point in over fifteen years, with nearly 2% of all loans being labeled severely delinquent in January 2023. America’s auto loan debt has risen to $1.5 trillion, up from $1.46 trillion in 2021. Many young buyers are behind on payments and more and more people are shying away from car dealerships altogether — both of which are bad news for the auto loan industry, which now faces the dual challenges of regaining and maintaining buyer allegiance while also resolving delinquencies and collecting debts.
A New Focus for Lenders
The auto loan crisis has led to a shift in priorities for finance companies. As the costs associated with handling loan delinquency are on the rise, it has become immediately necessary for lenders to identify and communicate with borrowers who are behind on payments while also staying abreast of legal and regulatory compliance issues.
Non-automated processes are no longer feasible. Digitization and automation are key to promoting cost and time efficiency, streamlining loan origination processes, and facilitating on-time payments with ease of use for consumers.
Enter: text-messaging.
Upon first glance, texting may not seem like an obvious solution to the unique problems facing the auto loan industry today. However, the numbers say otherwise:
- 97% of Americans use their texting application at least once per day.
- 85% of all consumers prefer receiving texts over calls and emails.
- Text messages have a 98% open rate (while emails average only 20%).
With these statistics in mind, text messaging emerges as the clear front runner in communication channels for the auto loan industry. Solutions by Text leverages the proven efficacy of texting and pairs it with streamlined collection processes so that you can text your way to a better bottom line.
The Solutions by Text Difference
Solutions by Text empowers lenders to meet consumers where they are — which is to say, on their phones — while increasing on-time auto loan payments and operational efficiencies. Our FinText platform streamlines communication and debt collection, all while remaining compliant.
Two-Way Texting removes communication barriers by opening a direct line of engagement between lenders and consumers. Research shows that more than half of consumers prefer texting with a customer support agent to talking on the phone. Two-Way Texting allows lenders to have direct conversations with consumers so that both parties get their questions answered and their needs met easily and efficiently.
Inbound MMS streamlines the loan origination and collection process by allowing consumers to submit important documents through a secure text message channel. Consumers are much more inclined to submit identification and verification assets when they can do so easily, without scanning or faxing, and when they know for sure that they are sending through a secure system.
FinText Payments is a 3-click process that enables consumers to make loan payments via text message. This process is streamlined even further by SmartURLs, which are shortened, trackable, secure links through which consumers can enter their payment details.
Automated Payment Reminders encourage on-time auto loan payments by reminding users through text, at the frequency of their choice, when a payment is due.
Two-Way Texting helps connect consumers with questions directly to an agent. When a consumer is unable to make a payment by the deadline or has questions about their payment, they often just need some help to figure out what their options are.
Dedicated Short Code builds trust between lenders and consumers, as these shortened phone numbers are vetted and verified with access limited to the people who need it. This, in turn, increases conversational consistency and reduces lag time that could jeopardize the customer relationship.
Ultimately, the Solutions by Text suite of products creates a cost-savvy channel for lenders to impact their bottom line without falling behind on new loan processes. But don’t just take it from us.
How SAFCO Partnered With SBT to Achieve a 70% Kept Rate
When SAFCO (Southern Auto Finance Company, LLC) identified a need to improve its Right Party Contract (RPC), it came to us to help them engage customers in two-way conversation. SAFCO leveraged our compliant-focused SMS subscription, two-way texting, dedicated short code, and SmartURL, all with noteworthy results:
- A 70% kept rate — 10% higher than SAFCO’s combined rate across all contact channels.
- An opt-out rate less than .5%.
- Text-promoted payments surpassing email and phone.
After witnessing these results, Daniel Baggett, SVP of Compliance and Loan Servicing at SAFCO, described Solutions by Text as “a leader in innovative methods of communication for collections.” (To learn more about our partnership with SAFCO, check out the full case study.)
Solutions by Text has been a game-changer for companies like SAFCO, and we can take your services to new heights, too.
Contact us to learn more about how a partnership with SBT can help you increase on-time auto loan payments.
