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The Utility of Current ML and AI Tools in Auto Lending

Auto dealers have heard the hype about how machine learning (“ML”) and artificial intelligence (“AI”) are going to transform their businesses. Typically, there are usually two binary outcomes that are discussed.

On one hand, the promise of the future seems so bright. Instead of relying on intuition and gut feeling, many divisions of their businesses—including their financing departments—can rely on powerful algorithms to make the most rational decisions possible. The assumption is that this type of objective decision-making will, presumably, increase their bottom lines.

But on the other hand, there is a more pessimistic scenario. The assumption goes that a dealer will implement sexy, sophisticated ML and AI systems, but those systems will often fail or deliver poor advice to the dealer. The dealer, consequently, loses time and money as they try to leverage the latest advances in technology.

Unfortunately, both of these thoughts on ML and AI are a mistake because they aren’t looking at what is occurring right now. If they did, those in the pessimistic camp would be much more positive about where things stand in 2019. ML and AI algorithms that judge the creditworthiness of auto loan applicants have already made significant strides.

If you aren’t yet familiar, the basic idea of combining ML and AI algorithms and the auto loans sector is that machines, using robust data sets as a model, can better judge whether a particular borrower will successfully repay the principal of an auto loan. While current algorithms cannot predict with absolute certainty about whether a borrower will make his or her payment in full, the algorithms can make their predictions with high levels of confidence.

One young company that is working to help lenders minimize defaults in their auto loan portfolio is Aclaró. Aclaró designs and leverages powerful ML and AI algorithms through its proprietary FinTech – Repayment Risk Artificial Intelligence System to make an extremely educated prediction on whether a particular borrower will repay their loan. On average, Aclaró is over 97 percent accurate in determining whether a particular loan would be charged off or paid in full. In addition to its powerful algorithms, Aclaró prides itself on its beautiful user interface. By looking at their auto loan portfolio in several different visual formats, lenders can quickly identify where most of their risk is located.

Companies like Aclaró are making auto lenders’ jobs easier today, and the future is even more exciting. Future advancements in predictive analytics will result in even more detailed customer profiles, making these ML and AI algorithms even more accurate.

Regardless of the expected (and unexpected) turns of ML and AI technology, the underlying questions remain the same. They center on a loan applicant’s ability to pay back a loan, and how much a lender should be compensated for that particular risk. Advances in new technology are there to serve these underlying questions and usher in a new methodology of qualifying risk.

Ultimately, the key component is that humans must work with the machines in order to reach a final conclusion. This is why an intuitive user experience (like the one found in Aclaró) will be so useful and beneficial. While the AI machines crunch the numbers and deliver a prediction, ultimately a lender who interprets that information must take appropriate action to limit their risk exposure.

Adding in the fact that there is another human, not another machine, on the other end of the transaction, it’s clear that a human touch is needed today and will continue to be needed tomorrow. Eliminating and avoiding friction between an auto loan lender and borrower is an extremely high priority that won’t be going away anytime soon.

The current state of ML and AI in auto loans is undoubtedly exciting. And while the future remains unknown, auto lenders and dealerships can benefit exponentially by leveraging current technology. That said, the technology is just a tool. It must be used to solve a customer’s job while also making employees’ lives easier. Leverage a platform like Aclaró, can make these jobs much easier.


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