Digital transformation & bigger loans: how auto finance is evolving in 2022

Evolutions in auto finance: digital F&I, bigger loans, and what it means for auto retail

2022’s latest research shows double-digit loan increases and an urgent demand for digitization

Out of more than 28 million automotive transactions in 2021, roughly two-thirds still happen on paper, not digitally according to research from Automotive News and Wolters Kluwer. With consumers’ unstoppable demand to buy nearly everything online, that’s an eye-opening statistic for any retail sector. 

In the automotive industry–in which every year models get bigger, faster, and more technologically advanced–the majority of transactions happening on paper highlights a slow-going adaptation to the ways car buyers want to do business. 

Customers are demanding better experiences, and that’s only going to increase given that they’re paying more for every car purchase. Recent research also points to customers ponying up more for their vehicles whether new or used. Experian’s State of the Automotive Finance Market Q1 2022 highlights double-digit increases in prices and thus, higher loan amounts. And subprime borrowers are experiencing greater increases than the prime market. 

Meanwhile, digital auto retail and AI-Powered Financing is changing the game in both arenas. Reducing the cost of credit, especially for subprime borrowers, and bringing the car-buying experience into the modern era—it’s technology to the rescue. 

Here’s a summary of the latest findings from some of the industry’s most in-tune establishments. 

Digital transformation cuts costs and improves efficiency, but dealers are still slow to adopt

Digital transformation index reveals trends disrupting auto finance todayIn their recent presentation,
Digital transformation index reveals trends disrupting auto finance today, Wolters Kluwer and Automotive News shined a light on three standout observations from their latest research. 

The first is that business disruption currently happening in the automotive retail industry is overwhelmingly driven by technology. While societal and economic factors abound, the role and impact of technology is making the most dramatic changes. 

Secondly, auto retail consumers are pushing hard for digital, omnichannel experiences. That means completely digital experiences, on their terms, with e-everything: browsing, communicating, transacting, signing contracts, and taking delivery. Fintech stands out as a leader of bringing this change to fruition, Wolters Kluwer points out, with disruption in auto finance a significant driving force in the auto industry’s overall technology push.  

And thirdly, the research points to dealerships retrofitting their tech stacks for digital retailing. They’re responding to the urgent need for digitization with either complete ground-up launches of new operations, or custom-fit integrations that work well with their existing stack.

Yet even as digital retail software gains market share by minimizing contact and friction throughout the entire car-buying journey, dealers are slow to actually adapt. Part of that comes from the challenge of customers wanting all or nothing: just going partially digital isn’t enough. So it’s on dealers to make the big lift to go completely digital from initial browsing to putting the key in the ignition. 

Auto lending, retailing, and other technology providers are ripe and ready to implement in showrooms. In fact, Automotive News and Wolters Kluwer’s research shows advancements in auto finance to be the most progressive in driving change. With loan originations, for instance, tech providers represent more than 75% of the digitization revolution. Lenders and retailers themselves pick up only that remaining less than 25%. 

Even while every OEM has a digital lending arm, dealers do not. But why? Captives like Hyundai Capital America in 2021 doubled its e-loans to 61% penetration. Undoubtedly, the aspects of digital revolution driven by the pandemic and its no-contact sales played a role here. And they’re not likely to go back to old ways.

AN/WK Digital purchase journey graphic

Technology providers can be the all-in-one solution. The graphic above from Wolters Kluwer represents tech provider’s capabilities as on par or better than those of retailers and lenders. So why not lean into their strengths?

AN/WK Vehicle eContracting TimelineFor any dealer still not convinced, consider that econtracting volume has soared in 2022. Even after a slight contraction alongside the economy in late 2020, the desire of consumers to handle their car-buying transactions online shows no signs of slowing–only growing.  

They come to the conclusion that, “the benefits of data speed, accuracy, and security are driving automotive digitization at a steady pace.”

Cost-savings and efficiency gains chip away at skepticism

While this research found that 55% of surveyed auto businesses are currently looking for a digital financing partner, less than 20% of those surveyed have an existing digital contract solution. But get this: digital processes proved to cut down contracting speed by half. From preparation to signature and storage, dealers with digital solutions are spending 50% less time on contracts as before they digitized. 

Retail and finance technology may not be adopted as quickly as other operational software, given that the surveyed businesses said they use some kind of digital solution mix to run 50% or more of their business.

For the 30% surveyed who said they were not sure if digital finance would speed up their processes, the stats above paint a clear picture that they will. In the survey, it was twice as fast, in fact. 

Digitizing retail and finance saves costs and reduces transaction durations, as long as the dealership’s tech stack is seamlessly integrated. The trends and consumer demands for digitization aren’t slowing down. The business case for digital retail and finance is clear. 

(Graphics and statistics in the above section credit to Automotive News and Wolters Kluwer.)

What’s compounding the benefits of digital retail and finance are the growth of vehicle prices and loan values. What if you could have cheaper, faster processes and higher profits?

Vehicle prices and loan values are soaring by double-digit percentages in 2022

Experian State of the Automotive Finance Report 2022 Q1Perhaps the biggest story in the auto finance transformation category, via Experian, is that vehicle financing amounts are up 11% on average year-over-year, from about $35,000 to over $39,000. That’s averaged across new car sales and across the borrower spectrum from subprime to prime+. One factor, aside from the inventory shortage, comes from the rising prevalence (above 60%) of SUVs in the vehicle finance mix. SUVs tend to bring higher MSRPs than sedans, hatchbacks, vans, etc.  

Used vehicle prices, per Experian’s data, jumped more than 30%, from around $21,000 to over $28,000. As one might expect, that’s partially what leads more consumers to finance used cars. The inventory shortage that is pushing many would-be new buyers into used options is also a factor. 

Loan rates may be slightly down, from 4.15% on average to 4.07% for new and 8.82% down to 8.62% for used. For new cars, the price jumps balanced with the rate drops and only marginal increase in term to yield only a $7 jump in average monthly payments: from $570 to $577. 

But the used car situation saw a larger monthly payment jump, topping $500 for the first time ever. With the average amount financed up more than 24%, but only marginal differences in rates and terms, used car buyers are paying on average nearly $90 more per month. All that said, Experian says delinquencies have only increased slightly, to 1.6% from 1.5%, which is still below 2019’s 1.9%. 

(Statistics and graphic in the above section credit to Experian.)

All that to say, a monumental increase in vehicle prices opens doors to bigger profits for dealers. But as customers spend more, they expect better experiences. And as evidenced earlier, better means digital. 

A clear path to fully digitized auto retail and financing

Many dealers have found success in bringing to life a fully digital car-buying experience alongside efficient digitized financing workflows with Upstart Auto Retail. Working as a full-suite virtual showroom and easily integrated with additional tools like dealership management software, the platform elevates dealers to the digital-first level preferred by today’s consumers. 

Within this digital auto retail tool, customers enjoy an intuitive online showroom experience as they browse from their computer or mobile devices. They can view and compare multiple models across a dealer’s complete network of rooftops. They can even live chat instantly to answer questions and schedule video call walkarounds with salespeople from the comfort of their home. 

Seamlessly, the experience continues if and when a customer enters the showroom–although the platform also allows for completely remote sales. Alongside a sales associate, guests can update and customize their vehicle and finance options right in front of their eyes on an iPad. 

And without jumping back and forth to the finance or manager’s office, sales associates can get questions answered, deals approved, and documents signed. Plus, when AI-Powered Financing is available, credit decisions are instant, with only a soft pull1, and in 74% of decisions, AI-Powered Financing comes in with the lowest rate to give buyers more purchasing power2.

So as consumers demand completely digital, omnichannel experiences from car dealers and while prices for cars continue to soar, your dealership can stand out ahead of the pack with a holistic, easy-to-use solution like Upstart Auto Retail


1This initial (soft) inquiry will not affect credit score. If the user accepts the loan and proceeds with the application, we do another (hard) credit inquiry that may impact credit score.
2These figures are from February 24, 2022 to April 30, 2022 across three Del Grande Dealer Group rooftops.


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