E-loans save time, appease customers - finance companies' use of electronic decision-making in car loan applications

Few greater aggravations in the car retailing business exceed having the customer fill out a loan application, which will be faxed to several lending institutions, studied, and - after hours or even days - gets rejected.

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Even if the loan is approved, the financing process can extend the amount of time required to complete the transaction into a demoralizing ordeal. Small wonder that the financing part of buying or leasing a vehicle is what consumers find the most distasteful, according to customer satisfaction surveys.

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So what if the process could be streamlined to a matter of minutes rather than hours?
The Internet has already made it possible for consumers to arrive at the dealership "preapproved." That is, they've conducted their own online credit bureau check and determined their credit-worthiness.

But what if that customer's loan application could be shopped electronically and accepted or rejected in, say, 15 minutes? Would that improve the shopping experience for the customer and also spare the finance manager a few points of rising blood pressure?

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Indeed, relief from the credit application blues is at hand. Several finance companies are using electronic decision-making and the like to quicken loan rejections and approvals.

Meanwhile, Credit Management Solutions, Inc. (CMSI), currently connects more than 200 dealerships with 20 lenders in the U.S. and Canada via CreditConnection, an Internet-based electronic transmission link for processing car loan applications from dealerships.

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CMSI's lender list includes NationsBank, Bank of Montreal, Wachovia, First Union, Bank of America, Wells Fargo, Nissan Motor Acceptance and GMAC, among others.
But just being a CMSI client doesn't automatically make the dealership a customer of the lending institutions, says Nancy Weil, senior vice president of marketing for the two-year-old Annapolis, MD-based firm.

"It's up to the dealership to establish a relationship with each lender, as finance managers presently do by non-electronic means," she says. "Just because you become a CMSI customer doesn't mean you can send your paper to any CMSI lender.

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"We can make the introduction, so to speak. One of the things our service does is make it easier for dealers and lenders to contact each other. For instance, if a dealership wanted to expand its list of sub-prime lenders it does business with, we would facilitate the connection of that dealership with a CreditConnection sub-prime lender."

Using CMSI's electronic link to lenders, finance managers can submit loan applications and receive approval even during evening hours, weekends and holidays, when banks are closed.
Dealers need a 486 PC (or better), Windows 95, NT or 98, a modem and an Internet service provider (ISP), such as Mindspring, America Online, or similar carrier. This is equipment that most dealerships already have, says Ms. Weil.

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CreditConnection costs vary according to the volume of usage, from a low of about $500 per month to as high as $1,500 when used as a stand-alone system purchased directly from CMSI. There is also a start-up fee of $250.

CreditConnection is integrated with ADP and UCS computers, she reports. Interested ADP and UCS customers can purchase the service through their computer companies, which set their own pricing structures.

Although electronic loan processing is a relatively new concept, it could be poised for rapid growth, says Ms. Weil.

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She cites a Killen & Associates study. It says that although today fewer than 1% of auto loan applications are taken online, that number could jump to 40% by 2005.
The main factor that will spur growth in electronic loan processing is consumer demand for speedier loan application processing, asserts Kevin Clements, director of retail services marketing for Reynolds and Reynolds.

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"Consumers will eventually insist that the sales cycle be shorter, and they will have the capability to select the financing institution themselves," he says.
That could reduce dealership profits in the long run. But the ability to dramatically speed up the loan application process through electronic transmission would also allow the dealership to process more loans and sell more vehicles.

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Electronic loan processing could give captive financing institutions an advantage in the marketplace, Mr. Clements speculates. Reynolds and Reynolds currently provides electronic lending capability to some dealers through Chrysler Credit.



"The captives already have an edge in the marketplace," Mr. Clements reports, "because, through DCS communications between dealers and the factory, the captives gather a lot of data, such as what kind of payment history you have, and they're constantly trying to find ways to pre-approve a customer's loan application.

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"Now, in some states, once you're a customer of one department of a bank - a credit card holder, for instance that division of the bank can pass your credit information to another division, such as the consumer loan department. Then a consumer may start receiving preapproved offers for car loans from the bank.

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"Currently, 75% to 80% of car financing is indirect. The percentage of preapproved lending is inching up, but we're not seeing a groundswell yet. But as EFF (electronic funds transfer) grows, we may see more consumers going directly to lenders without using the dealer as an intermediary."

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Competition among lenders has slowed rather than encouraged the growth of electronic car financing, says Mr. Clements.
He explains, "One of the main obstacles is that in every state but California each lending institution has its own credit application form requesting some unique detail of information. So, there's no one-size-fits-all credit application that would allow the dealership to shotgun the credit application to a number of lenders simultaneously.

"The banks may have to make the loan application process easier if they want to receive information directly from the consumer. A number of them already have. There's potential here for everyone - the bank, the dealership and the customer - to benefit"