Knowing Auto Customers to Prevent Fraud

As consumer behaviors shift in the ever-changing auto industry, dealers and lenders must provide seamless customer experiences while reducing delinquencies and preventing synthetic identity fraud to remain competitive.

Optimizing the customer experience can make it easier for auto dealers to find their most interested customers. More than half of consumers are open to purchasing from dealerships that provide a superior experience, even if it means paying more, and they would also be more willing to go to a dealership if the buying process was more streamlined. However, most car shoppers favor a hybrid purchasing experience that integrates both digital and in-dealership experiences.

Some lender types can be more vulnerable to fraud and delinquencies so it’s best for auto lenders to know their customers, what they can afford, and the preferred lender types among different generations to reduce delinquencies and financial risk. So far, Baby Boomers are using captive financing more than other generations while Gen Z consumers are more likely to open an auto loan with a credit union compared to other generations.

In terms of the state of consumer finances in 2025, auto loan and lease debts have increased by more than 10% in the past 10 years. The total sum of outstanding balances stands at nearly $2 trillion. This makes auto loans the fastest-growing sector of non-mortgage consumer debt, surpassing student loans and credit card debt.

Delinquencies have also been increasing with almost 2% of auto loans and leases being 60+ days overdue as of November 2024. Some generations are experiencing more pressure from delinquencies than others, such as Gen Z consumers who have the highest rate of auto loans delinquent for over 60 days. With many feeling the financial strain, car sales have started to drop. This can also be attributed to higher interest rates and car prices, which have both risen by at least 34% in the last eight years.

Fraud is another growing issue as synthetic identities (Syn ID) have surged by 59% annually the past five years. 2023 saw Syn ID fraud rise by 98%, which has led to almost $8 billion in losses. In just four years auto loan credit applications with a risk of Syn ID have risen by 60%. And with loans and leases with a Syn ID risk, their delinquency rate is typically three to five times greater than the portfolio average.

By optimizing customer experiences, understanding customers’ lending preferences, and implementing proactive fraud prevention strategies, dealers and lenders can manage rising delinquencies and synthetic identity fraud while staying competitive.