The home and auto loan industry was not spared from the economic instability of the last two years. Rates came crashing down in response to the market downturn in early 2020 as the economy entered a recession. Government intervention then put more money into everyone’s checking accounts. More money made it less likely people would miss home and auto loan payments, and companies became more aggressive in offering loans for smaller purchases. Some homeowners took advantage of lower interest rates to refinance. Soon, shortages in both the housing and auto markets combined with excess spending money sent prices for both up. And then in response to inflation, interest rates have climbed (and may continue to climb) higher than they were pre-pandemic. Housing prices have finally started to drop. The economy has kept home and auto lenders on their toes.
While government interest rates and the general economic climate remain outside of the control of lenders, firms do have control over their digital experiences—and this is increasingly where firms compete. A good website and app allows firms to respond quicker to changing customer needs and adapt to the current market. Below, CI’s home and auto loan research team has compiled four best practices that lenders can use to improve their digital experiences—helping them attract and keep customers in this ever-evolving environment.
Win existing customers with relationships and new ones with attractive rates
Digitalization leads to greater competition. Customers are no longer limited to lenders within driving distance, but rather can choose any lender with an app or website. With more competitors across channels, firms need new ways to attract and retain lending customers beyond proximity and convenience. Our lending researchers have identified two ways that firms can compete:
- Offer attractive rates
- Lean on existing relationships
Our survey work has found, unsurprisingly, that customers care first and foremost about interest rates when choosing a lender. But the second most important reason for choosing a lender is an existing relationship—so firms that can’t compete on price can do so by emphasizing reliability and providing perks for existing clients. (Firms that can compete on price can obviously increase their advantage by forming good relationships.) Additionally, younger clients rely more on recommendations from friends, family and third-parties when choosing a lender. Younger clients also are more likely to value digital technology or tools from their lenders—a factor we’ll explore further below. Rates matter when it comes to home and auto loans, but reputation can also attract and retain customers.
Prioritize mobile and Millennials
Our previous research into the lending space suggests that firms need to invest more in their mobile experiences. Survey respondents are generally happy with the desktop experience when it comes to account information and loan servicing. But mobile satisfaction scores are significantly worse in these areas, suggesting that firms continue to prioritize desktop over mobile. On one hand, this makes sense: 81% of our survey respondents accessed their account from the desktop site, compared to just 45% on mobile. On the other hand, Millennials are now the group taking out the most loans, and they have an affinity for mobile experiences. Firms hoping to attract new Millennial and Gen Z clients—both of whom, predictably, are more likely to access their financial accounts via a mobile device—should invest in their mobile experiences. The firms that build out mobile capabilities now will build those important relationships with younger clients, giving them a leg up in the future.
Give users support options across channels
Our survey also found that, across channels, users want multiple support options. Email and live chat support are the most popular options across desktop and mobile, as well as among different generations, so firms should focus on these two. Email support is standard across the industry at this point and is no longer a differentiator. Firms can separate themselves, however, by building out their live chat and virtual assistant options, two features that customers rate particularly highly, according to our surveys. Virtual assistants benefit both firms and customers by answering common questions and helping with frequent transactions without the need for a live person on the other end. Virtual assistants can still redirect more complicated queries to a customer service representative in a live chat, ensuring everyone receives appropriate levels of help. Firms should also ensure these existing tools should support loan transactions. Bank of America’s app, for example, allows customers to initiate transactions such as mortgage payments through Erica, the firm’s virtual assistant.
Offer payment flexibility for happier customers
Another one of our home and auto loan best practices: Customers understandably like it when payments are easy to make. Payment-related capabilities scored particularly well on our customer survey. More than half of respondents to our survey said that automatic payments were “extremely important” or “very important.” A similar percentage valued paying their outstanding mortgage balance using the on-file payment method, and also requesting mortgage payoff quotes on the website. Firms obviously benefit when payment is easy, as fewer hurdles generally means a higher percentage of on-time payments. Customers also benefit in terms of satisfaction when payment—something that is generally annoying—becomes as frictionless as possible.
Based on our survey results and study of home and auto loan websites, our researchers have identified some best practices around payment. Firms should offer automatic payment frequency options, such as allowing customers to set up bi-weekly payments. They should also offer customers the option to schedule partial payments and provide contextual help explaining how this payment method works. Mr. Cooper, for example, offers a dedicated Partial Payment interface on the desktop site, where customers can make one-time partial payments and learn more about how partial payments function.
For more from CI, visit our Insights section. And be on the lookout for more about our upcoming Home and Auto Loan subscription research.