Every auto financing entity wants to maximize its collection of loan payments while simultaneously cultivating and maintaining a level of customer satisfaction that leads to repeat loan servicing business. Achieving both objectives is not difficult, providing that the billing and payment experience is a positive one that meets changing borrower preferences. With this in mind, E-Complish takes a look at what auto financing companies need to know about payments now.
1. Digital payment methods are a must
In the not-too-distant past, consumers were content to make payments on their auto loans using a check or—albeit to a lesser extent—cash. However, this is no longer the case. Consumer interest in handling their auto loan payments digitally is as strong as their interest in moving away from old-school payment methods in general. For example, according to a survey by one payment processor, 80 percent of individuals who complete their monthly auto payments through a live telephone system would rather use a web portal to do so.
2. It’s all about choices
Most borrowers want access to as wide a range of payment options when it comes to repaying their auto loan as they have when making purchases in stores and paying all of their other bills. This makes it a wise idea for auto financing companies to support digital payment options, such as web-based payments and mobile payments, as well as text-based, interactive voice response, and electronic check payments.
The more extensive auto financing companies’ loan payment menu, the higher the level of borrower satisfaction. Having a choice of payment methods—in other words, payment flexibility—may even increase the likelihood of on-time collection.
3. Recurring payments pay off
Consumers have come to appreciate the advantages of recurring payments for goods and services—i.e., no worries about late and missed payments (and the fees that accompany them). Merchants in other market segments also enjoy benefits here, as fewer late and missed payments bolster the bottom line.
The appeal of recurring payments for auto loans is the same for borrowers, many of whom would prefer a “set it and forget it” approach to the process, and for auto financing entities themselves. By some estimates, the latter see a 50 percent reduction in loan delinquency rates when they make recurring payment arrangements available to their client base.
4. Paper is “so yesterday”
Demand for electronic bill presentment and payment (EBPP) as an alternative to printed invoices is on an uptick, with the number of electronic bills issued annually slated to increase from 19.8 billion in 2020 to 35 billion by 2026, according to research from MarketsandMarkets. Such demand is extending into the auto financing sector as consumers seek to reduce waste and make it easier for themselves to keep track of their bills—including bills for their monthly auto payment.
5. Catering to millennials is key
Taking every possible step to facilitate auto loan payments by millennials is of critical importance not only because their ranks are so expansive (73 million strong, according to the Pew Research Center), but because of widespread auto loan delinquency rates in this demographic group.
Figures released by credit reporting agency TransUnion indicate that loan delinquency rates for today’s millennials—along with members of Gen Z—are significantly higher than before the pandemic. Millennials (individuals born between 1980 and 1994) have fallen behind on car loans at a rate of 2.14 percent, compared with 1.66 percent before the pandemic. Gen Z-ers (those born in 1995 and after) have a past-due rate of 2.21 percent, up from a previous past-due rate of 1.75 percent.