Industry-first AutoCare introduces automated, mortgage-style loan modifications for auto loans. - Image provided by Constant

Industry-first AutoCare introduces automated, mortgage-style loan modifications for auto loans.

Image provided by Constant

Fintech and automated loss mitigation provider Constant has announced the launch of AutoCare, an innovative module on its cloud-native SaaS platform designed to fend off auto loan delinquency and prevent involuntary repossessions. With auto loans emerging as one of the hardest-hit categories of credit amid the coronavirus pandemic, the ability to offer loan modifications, typically applied to higher dollar debt such as mortgage loans, is a game-changer for the auto loan industry: it can mean the difference between margin retention and partial or total loss for lenders. AutoCare includes a fully automated voluntary repossession feature for borrowers not able to retain their vehicle.

Offering mortgage-style relief options on auto loans can help reduce delinquency roll rates, charge-offs, and bankruptcy.

AutoCare is first to market introducing automated loan modifications to the consumer, auto financing space. “Historically, it has not been cost-effective to offer mortgage-style hardship relief for small dollar loans,” said Carissa Robb, President and COO at Constant. “The timeline to collect and record a total loss is shorter for auto loans, as compared to real estate secured loans. As relief options tighten, delinquency worsens and charge offs accelerate, few relief options are available to restructure and return borrowers to performing. Until now.”

Robb adds: “Offering mortgage-style relief options on auto loans can help reduce delinquency roll rates, charge-offs, and bankruptcy. Where appropriate, offering non-retention options like an automated repossession tool that allows borrowers to voluntarily surrender their vehicle if a workout option is not appropriate, protects asset value.”

Early in the coronavirus pandemic, regulators issued guidance allowing for short term extensions and forbearance plans without proof of hardship, ability to pay or information about how to sustain payments at the expiration. According to the Wall Street Journal, auto borrowers were big beneficiaries of lenders’ forbearance. Large banks and lenders reported the median amount of lending volume in forbearance after the first quarter at 7.5% for auto loans, compared with 3.6% for credit cards. Transunion cites just over 7% of auto loans are in some type of financial hardship program as of June. According to the top new and used car lender, Ally Financial's 2Q 2020 Earnings Review, 1.1 million of its retail auto loan customers, or 25% of its accounts, are using its deferral program.

Swift government stimulus together with lender hardship relief programs mitigated sharp increases to delinquency rates. As collection moratoriums are being lifted and short-term payment extensions expire, more complex loss mitigation options will follow. Lenders that have been tracking extensions and deferrals on Excel spreadsheets or rudimentary tracking systems are most at risk of accelerating delinquency roll rates and compliance errors.

AutoCare tackles the most complex part of offering a loan modification: determining willingness and ability to pay. Constant’s software provides lenders with a real-time view of a borrower’s financial situation through multiple data sources - avoiding credit blindspots - determines their ability to pay, and presents a sustainable relief option based on investor rules that can be accepted and signed, all in minutes. 

“By offering a 24/7 self-service option to engage with the borrower and incorporating their responses into a complex, proprietary decision engine, lenders are able to understand the duration and severity of a financial hardship,” concludes Robb. “This precision allows for an appropriate recommendation to manage the outstanding debt, with the least amount of disruption to the customer and the lender.”

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