Auto finance

A brief auto finance industry Q&A with ChatGPT

ChatGPT has taken social media by storm and is already being touted as one of the most revolutionary technologies of the decade. In case you missed it, ChatGPT is a chatbot developed by OpenAI that enables human-like conversations. The key difference between ChatGPT and legacy chatbots is the wide variety of questions it can handle and how natural (i.e., “human-like”) its responses are.

As an AI-first company, we were eager to take a look beyond the hype to experience what ChatGPT has to offer firsthand. Since many of our clients are in the auto finance space, focused on loan servicing and collections, this proved to be the perfect topic to test the waters.

We opened our Q&A with ChatGPT by asking it to explain the latest trends in the auto finance industry, like increasing interest rates and defaults. Then, just like natural human conversations do, our chat evolved to explore a series of related questions. 

While the skeptic in us expected ChatGPT to perform similarly to existing chatbots, to say we were amazed by its high-quality answers is an understatement. But don’t take our word for it, check out the conversation below.

A Conversation with ChatGPT

Prodigal’s Conversation with ChatGPT

Question: What is the impact of an increase in interest rates on auto lenders?

ChatGPT Response: Generally, an increase in interest rates can have a negative impact on auto lenders. When interest rates rise, borrowing costs for consumers also increase, which can make it more difficult for them to obtain financing for a car purchase. As a result, auto lenders may see a decrease in demand for car loans and a corresponding decrease in their profitability. Additionally, higher interest rates can also lead to increased defaults on existing loans, as some consumers may struggle to keep up with their monthly payments. Overall, an increase in interest rates can pose challenges for auto lenders, but the exact impact will depend on a variety of factors, such as the size of the interest rate increase and the state of the broader economy.

ChatGPT Response 1

Question: How can lenders cope with increased defaults on existing loans as interest rates rise?

ChatGPT Response: There are several strategies that auto lenders can use to cope with increased defaults on existing loans as interest rates rise. These may include:

- Offering refinancing options to borrowers with existing loans. This can help borrowers lower their monthly payments and make their loans more affordable.

- Tightening underwriting standards for new loans. By only lending to borrowers who are less likely to default, lenders can reduce the likelihood of defaults on their loan portfolio.

- Increasing loan loss reserves. Setting aside more money to cover potential losses from defaults can help lenders absorb the impact of higher default rates.

- Diversifying the loan portfolio. By lending to a wider range of borrowers, lenders can spread their risk and reduce the impact of defaults on any one group of borrowers.

Overall, the key for auto lenders in dealing with increased defaults as interest rates rise is to carefully manage their risks and take proactive steps to reduce the likelihood of defaults. By implementing these and other strategies, lenders can help mitigate the negative impact of higher interest rates on their business.

ChatGPT Response

Question: If a borrower is unable to pay despite all attempts, what can an auto lender do?

ChatGPT Response: If a borrower is unable to pay his auto loan despite the lender's attempts to help him, the lender may ultimately have to repossess the vehicle. This is a legal process in which the lender takes back possession of the car from the borrower because the borrower has defaulted on the loan.

Before repossessing the car, the lender will typically send the borrower a notice of default, giving the borrower a certain amount of time to catch up on missed payments and avoid repossession. If the borrower is unable to do so, the lender may repossess the car.

Once the car has been repossessed, the lender will typically sell it at an auction or through a dealer in order to recoup the outstanding balance on the loan. If the sale of the car does not cover the full amount owed, the borrower may still be responsible for paying the remaining balance, known as a deficiency balance.

Overall, repossession is a last resort for auto lenders, but it may be necessary if a borrower is unable to pay despite the lender's efforts to help. It's important for borrowers to communicate with their lenders and try to find a solution before their car is repossessed.

Question: Who can repossess a car?

ChatGPT Response: In most cases, repossession of a car can only be carried out by the lender or a repossession agent acting on behalf of the lender. In some states, the lender may also be able to repossess the car without notice if it is parked on the lender's property or if the lender has a legal right of repossession (such as through a lien on the car).

However, it's important to note that repossession is a legal process, and the lender must follow certain rules and procedures in order to repossess a car. For example, the lender cannot use force or violence to take the car, and they must not breach the peace in the process of repossession.

Additionally, some states have specific laws governing the repossession of cars, including requirements for notice to the borrower and procedures for handling the repossessed vehicle. It's important for lenders to familiarize themselves with these laws and follow them carefully in order to avoid legal complications.

ChatGPT is a Class Apart from Other Chatbots

All-in, we were pleasantly surprised to find that ChatGPT lives up to the hype. Just skimming the Q&A above, you can easily see the depth and completeness of ChatGPT’s thoughtful answers. Considering its correct use of language, tone, and examples, you might even almost forget that this was a conversation between a human and an AI.

You can give ChatGPT a test run for yourself by following this link to OpenAI’s website. But, be forewarned, their system has been periodically unavailable recently due to the extremely high demand they are experiencing. A message on their website says they’re actively working to scale-up.

Everyone at Prodigal is excited to see ChatGPT’s progress, and we are actively working to bring similar innovations to our clients and prospective clients. If you’re equally interested and excited about AI, we’d love to chat with you about how Prodigal can help you take advantage of artificial intelligence to increase revenue and decrease risk in your loan servicing and debt collection contact centers. You can schedule a 30-min call here.