July 21, 2024

Alternative data as the cornerstone for risk-based pricing

Utilizing alternative data enables auto lenders to make more accurate risk-based pricing decisions and account for potential losses.

While some lenders still depend solely on credit scores, income, employment history, and debt ratios to approve loans, Kevin Filan, senior VP of marketing at Open Lending, emphasized the importance of considering factors like vehicle values in loan approval.

Filan mentioned that understanding how different vehicles depreciate at varying rates is crucial for risk assessment and pricing. Predicting payment default timelines allows lenders to gauge the severity of potential defaults.

For instance, even though Hyundais and Hondas may have similar prices, their depreciation rates differ, impacting risk assessment for lenders. Analyzing vehicle values at the predicted default point aids in making informed decisions from the loan’s inception.

Auto Loan Delinquencies on the Rise

In light of inflationary pressures impacting consumers, Melinda Zabritski, senior director at Experian, highlighted the significance of alternative data in understanding borrower behavior amidst increasing delinquencies and debt levels.

Zabritski noted a surge in 60-plus-day delinquency rates in auto loans, reaching levels reminiscent of those seen during the 2009 financial crisis.

Source: Experian

Zabritski pointed out an increase in roll rates for delinquencies in auto loans, signifying a potential shift in the industry landscape amid high vehicle values and loan amounts.

Filan from Open Lending highlighted the benefits of alternative data in effectively monitoring vehicle values and predicting prepayment and default probabilities, enabling lenders to offer competitive rates to near-prime borrowers while managing default risks.

Join us at Auto Finance Summit, the leading industry event for auto lending and leasing, from Oct. 7-9 at Wynn Las Vegas. Register now at www.AutoFinanceSummit.com.


Q: Why is alternative data important for auto lenders?

A: Alternative data provides a more comprehensive view of borrower behavior and risk factors, aiding in accurate pricing and risk assessment for loans.


Utilizing alternative data in the auto lending industry is key to adapting to changing consumer trends and economic conditions. By incorporating diverse data sources into their risk assessment processes, lenders can make informed decisions that benefit both borrowers and financial institutions.

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