Industry Voices | Dealers’ 2025 Auto Lending Playbook

As 2025 approaches, automotive lenders face three challenges: surging fraudulent activity, persistent economic pressures and the critical need for faster decision-making. Although these might seem disconnected, they are different spokes on the same wheel, and those who can navigate this environment will be best positioned for success in the new year. Here’s what these issues look like on the road and how we can best address them:

The Growing Problem of Fraudulent Loan Applications

As generative AI use increases, so does the potential for nefarious applications. According to Point Predictive’s Auto Lending Fraud Trends Report, synthetic identity fraud attempts skyrocketed by 98% in 2023, fueled by AI-generated documentation and fabricated credit profiles creating entirely fictional borrowers.

Synthetic identities now represent a record-breaking risk for lenders. By mid-2024, U.S. automotive lenders faced potential losses of $3.2 billion, a 7% year-over-year increase. Practices like credit washing – where negative credit histories are erased through fraudulent disputes – rose by 30% in 2023, further complicating risk assessment.

Additionally, fraudulent loans tied to fake employers, credit washing or synthetic identities also bear staggering default rates of 82%, 69%, and 68%, respectively.

Many lenders may attempt to stem this rising tide of fraudulent applications by doubling down on their traditional security practices – but you can’t solve a new problem by relying on old methods. The increased operational strain from using manual reviews to spot manipulated credit data is ineffective and unsustainable, draining your workforce while still letting cracks of fraud splinter and widen.

There are advanced tools to help financial institutions accurately protect against fraud without sacrificing time and resources.

Sailing With and Not Against Economic Headwinds

Persistent economic challenges are creating a slew of problems for lenders. According to the New York Fed, the average rejection rate for automotive loans reached a historic high of 11.4% in 2024, which is a two-pronged issue. On the one hand, borrowers facing financial strain may be incentivized to misrepresent their income or debt levels to combat the damming of the credit availability stream. Additionally, as financial institutions use a broad-strokes approach to mitigating risk by rejecting more applicants, they further isolate themselves from high-yielding and reliable near- and non-prime borrowers who may appear riskier through traditional credit metrics alone.

However, by harnessing alternative credit data to get a more accurate view of borrower risk complemented by automated income, employment and identity verification, lenders can identify deserving borrowers and better insulate themselves from defaults and delinquencies.

The challenges of accuracy and decision speed are interlinked. When lenders cannot verify a borrower’s creditworthiness precisely and quickly, those organizations are vulnerable to more fraud and losing qualified applicants to faster competitors.

According to Open Lending’s Lending Enablement Benchmark Report, only 5% of automotive lenders can deliver decisions within seconds, and lenders with lengthy approval times are twice as likely to require rerunning the application to counter a denied application. This illustrates the importance of automated decisions powered by robust industry data to create a customer experience with far less friction and one that helps lenders safely expand their member base while empowering creditworthy borrowers with the multidimensional benefits of vehicle ownership.

The Path Forward: Smarter Lending Fueled by Technology

Expanding auto lending portfolios doesn’t have to be synonymous with increased risk. Lending Enablement Solutions can empower lenders to employ a more comprehensive approach, including:

By adopting adaptive, AI-powered tools, lenders can mitigate fraud, enhance application integrity and confidently extend vehicle ownership to more deserving borrowers.

A Roadmap for Success

Automotive lenders who embrace technology-driven solutions will be better equipped to navigate the challenges of 2025. By reducing fraud, improving decision-making speed and expanding access to creditworthy borrowers, they can unlock opportunities for growth and resilience.

For a deeper dive into these critical issues and actionable solutions, watch Open Lending and Point Predictive’s webinar recording here.