The auto industry changes at lightning speed, influenced by evolving consumer behaviors and preferences. As a growing number of consumers seek to purchase vehicles online, savvy dealers and lenders are upgrading their processes to offer auto buyers a streamlined, fully digital buying experience.

The transition to online car buying presents a range of challenges for lenders, particularly in verifying borrower information. Online platforms eliminate the traditional dealership experience, allowing buyers to browse, finance, and purchase vehicles from their homes. While convenient, this process introduces verification gaps that lenders need to address.

Coupled with this shift in consumer interest to online buying, fluctuations in interest rates indicate that lenders may ease credit restrictions, making it easier for consumers to finance or refinance their vehicles.

To mitigate risk and lend with confidence, lenders must ensure that buyers are properly identified and financially capable of repaying their loans. Automated verifications of income and employment (VOIE) and identity can help address this challenge by equipping lenders with reliable data, reducing reliance on borrower-provided information, and enhancing the customer experience in the fast-paced auto financing market.

Providing a frictionless experience

When purchasing a vehicle digitally, consumers expect a seamless experience. Whether you’re a lender, dealership, or original equipment manufacturer (OEM), delivering a frictionless process is key. The responsibility falls on these organizations to facilitate a journey that achieves two main objectives: providing consumers with the necessary information and insights, and ensuring a smooth transaction.

Although online car buying is growing in popularity, the purchasing process often spans multiple channels. Many consumers complete parts of the negotiation and approval process online while finalizing other steps in person. Given this reality, dealers and lenders must create a robust digital process that enhances the experience for both customers and themselves.

Providing the right tools and information early in the process helps consumers identify favorable deals and incentives, fostering goodwill and trust.

The power of alternative data and automated verification

Expanding access to qualified borrowers requires lenders to move beyond traditional credit scores and incorporate alternative data sources—such as telecom, pay TV, and utility payment histories. This offers a more comprehensive view of a borrower’s financial health.

Lenders can enhance this approach by utilizing instant verifications of income and employment (VOIE), which provide deeper insights into a borrower’s ability to repay loans. VOIE is a powerful tool that helps lenders approve loans more responsibly while improving risk assessments.

The appeal of digital purchasing lies in its seamless and efficient process, eliminating manual and time-consuming tasks. Traditionally, car sales require multiple face-to-face interactions, but with data-driven insights, dealerships can now understand and engage with customers digitally.

Requiring physical pay stubs and paperwork can delay approvals, frustrating consumers who expect a fast process. Automated VOIE solutions offer a streamlined alternative, enabling lenders and dealerships to:

—Accelerate approvals for a smoother customer experience.

—Reduce reliance on borrower-provided financial data, minimizing risk.

—Expand credit access for consumers with limited credit histories.

Inconsistent underwriting and delayed verifications create bottlenecks that contradict the very purpose of digital processes. To avoid these issues, lenders should implement a structured VOIE approach, verifying income early in the application process, confirming employment during underwriting, and conducting a final verification before closing the deal.

Addressing fraud in auto financing

As digital car purchasing becomes more accessible, fraud risks also increase. Fraudsters are an ever-growing threat in the auto industry, and fraud rates have risen by 98%, contributing to approximately $8 billion in losses, according to Point Predictive.

Additionally, when auto lenders were asked in a recent Equifax poll what type of fraud they encounter most, 51% answered Income/Employment fraud, 35% answered Identity fraud, and 14% answered synthetic fraud. Therefore, implementing strong fraud protection measures preserves the customer experience while providing dealers with clear indicators of potential threats.

Simple yet effective security measures, such as multifactor authentication and frictionless mobile identification, can enhance fraud prevention. These safeguards allow dealers to calculate pre-qualified offers securely without introducing unnecessary friction for consumers. Lenders may also face challenges with identity verification, as it can be difficult to validate identity with paper verifications or manual processes. Automated identity verification tools that validate an applicant’s provided name and Social Security Number can help make this process easier and provide lenders with assurance earlier in the credit cycle.

The auto financing industry is constantly evolving, making it essential for lenders to adapt their strategies to meet shifting consumer expectations. Developing a streamlined digital process can help give lenders and dealerships an edge in an increasingly competitive market.

Will Holleman is the sales leader of the Equifax Verification Services Auto team. Will serves a wide variety of clientele, ranging from large banks and credit unions, to buy-here, pay-here clients and subprime auto lenders. His experience and industry knowledge come from over eight years at Equifax where he leads the auto division. Prior to joining Equifax, Will worked in dealerships and rental agencies, which provided him with an understanding of the challenges and nuances of the auto industry.