Scienaptic’s AI-Powered Underwriting Platform

Many low-income individuals and those with poor credit are excluded by the mainstream lending model in the United States and other countries. “Credit scores are highly correlated with income and are important both for credit access and for basic necessities such as renting an apartment or opening a utility account” (Federal Reserve Bank of New York, “The State of Low Income America,” 2020).

In 2021, 30 percent of U.S. consumers had a subprime credit score (less than 670), and the average credit score was 586 (Experian). For a used car, the average interest rate for a subprime auto loan is 18.39 percent compared to only 9.33 percent for a prime auto loan (credit score of 661 to 780) (Experian, 2023). For a $35,000 car financed for 72 months (6 years), the subprime borrower pays an additional $12,194 in interest. For many individuals in areas with inadequate public transportation, owning a car is necessary to attend work and school and to access healthcare and healthy food. But for low-income individuals, these expensive car payments are often not financially possible.

Additionally, the traditional credit model negatively impacts other populations. In the U.S., 45 million adults had either no credit record or no score in 2020, which also presents barriers to accessing auto loans (Consumer Financial protection Bureau). And other countries, including Canada, the United Kingdom and Australia, use some of the same credit bureaus (Experian, Equifax and TransUnion) and have scoring models similar to the one used in the U.S., further disadvantaging citizens of these countries (FinMasters, 2023).

These situations can drive individuals with low credit scores to predatory lenders whom they overpay for unreliable cars financed at rates as high as 30 percent. The U.S. Public Interest Research Group (PIRG) states that the increase in higher-cost subprime loans has extended auto ownership to many households with low credit scores, but these families are left deeply vulnerable to high interest rates and predatory practices that further damage their financial stability.

These include the lender providing confusing information about the terms of the loan; making loans to people without the ability to repay; putting discriminatory markups on loans that result in Black and Hispanic borrowers paying more for auto loans; and engaging in abusive collection and repossession tactics once a consumer’s loan has become past due.

And when unforeseen repair costs devastate their finances, individuals may be forced to put off other essential expenses like rent, utilities, food and medical care. When the car is repossessed because the borrower cannot afford to continue to make the payments and fund the repair costs, they often lose their job, which further damages their financial stability.

Scienaptic’s AI-Powered Credit Underwriting Platform uses artificial intelligence (AI) combined with On the Road Lending’s proprietary loan decision-making model to evaluate a prospective borrower’s resiliency in the face of adversity, calculate risk, and qualify them for car loans. On the Road Lending, which is a nonprofit, and its sister loan fund, On the Road Sustainability Funds (collectively referred to as “OTR”), developed this alternative lending model to make low-cost loans on reliable cars accessible to individuals based on who they are as people — not their credit scores.

Prospective borrowers apply online, and the platform reviews applications and decides to either decline or approve borrowers using the same criteria that an OTR staff member would use when reviewing applications. This improves the efficiency of the application process and is expected to increase the organization’s capacity by 30 percent.

The platform may also determine that more complex applications require staff review. Either way, staff will always be involved in the lending process as they provide virtual financial coaching, vehicle selection support, and post-loan financial mentoring to clients. The alternative lending model calls back to times when loans were made and repaid among community members who knew and trusted one another.

The AI-Powered Credit Underwriting Platform makes it possible to approve qualified borrowers more quickly, getting them on the road to better job opportunities and increased wealth for themselves and their families. As the platform scales into the traditional lending market, it will make it possible for individuals and families who have historically been excluded from the mainstream lending marketplace or those who have been included only through predatory lending practices, to access the equitable economic mobility they deserve. This will “promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all” in alignment with the United Nation’s (UN) sustainable development goal (Goal 8, 2015).

OTR’s solutions provide financial inclusion and mobility equity for working Americans, giving them the dignity and freedom of an improved credit score and the ability to take the best jobs available to them without worrying about how they will get to work each day.

Once an applicant is approved, the loan is arranged through On the Road Lending’s sister loan fund, which is a Community Development Financial Institution (CDFI) certified by the U.S. Department of the Treasury. CDFIs are designed to provide credit and financial services to underserved populations to help them join the economic mainstream. After ten years of making these loans with very low defaults, the fund’s loan loss reserve is sufficiently small that it can offer loans far below market for subprime borrowers -- charging interest rates from 8.5-13 percent, making the loans 50-60 percent less expensive than what borrowers would be able to access in the mainstream marketplace, saving clients around $20,000 per loan. The average loan amount is currently $23,000 with a $425-450 monthly payment.

Clients are individuals with poor credit scores who need reliable, affordable transportation. In 2022, OTR clients had an average credit score of 530 and an average income of $40,377. The majority were low-income individuals. Fifty-one percent were Black, 24 percent white, 17 percent Hispanic, seven percent multi-racial, 0.5 percent Asian and 0.5 percent Native American. Seventy-five percent were female and 23 percent male (two percent did not self-identify).

OTR’s intake process is designed to build trust and learn about clients’ needs and hopes for the future. Through virtual services including financial coaching, vehicle selection guidance and post-loan mentoring throughout the loan term, clients work to improve their financial wellness, increase their income and rebuild their credit. OTR provides referrals to partner organizations to support clients with workforce development training, housing counseling and emergency financial assistance while they participate in the program.

To increase access for qualified borrowers, OTR began partnering with credit unions, offering a loan refinance product and working directly with employers through an employee assistance program loan aggregator that refers individuals with credit scores of 580 and below to OTR. Additionally, OTR has made investments in technology to increase capacity through greater efficiencies and automations that will lower operating costs associated with scaling. These include partnering with Scienaptic, which is a company that has worked with more than 140 lenders to implement AI-powered credit decisioning. These lenders have seen an increase of 15 to 40 percent in loan approvals and a decrease in loan losses of 10 to 25 percent model (Scienaptic, 2024). This makes it possible for financial institutions to underwrite more profitable loans and for low-income and credit-challenged individuals to have access to the auto loans they deserve. For OTR, it will make it possible to join NerdWallet and Lending Tree, which advertise auto lenders that offer immediate loan decisions. With these partnerships in place, OTR will be able to scale to serve more borrowers and can more effectively promote its alternative-lending model.

Over the life of the loan (up to six years), OTR staff interact with clients monthly to request their input on the program and updates on their progress. Clients receive a formal survey before the loan is finalized and one year later. Clients also have the opportunity to participate in focus groups. OTR staff are in the process of reaching out to the organization’s first clients, who became borrowers 10 years ago, to see how they are doing since paying off their loans. Throughout this process, OTR has ensured a mutually respectful environment for clients that has encouraged them to provide input and share their stories, and clients have responded willingly. Four former clients have become employees of OTR, and one client leads the ambassador program, which conducts outreach.

Lonnie Smith, On the Road Lending President, grew up in Kansas City, Missouri, on a major bus line. His family used public transit and were dependent on rides from others. His parents purchased an old Pontiac for a small amount from a neighbor who was an older adult and unable to continue driving. With the vehicle, the family no longer had to depend on rides from friends and family to go to church and buy groceries. Just for a trip to the grocery store, the car saved the family an hour and a half roundtrip that would have been spent on public transportation. The vehicle changed his family’s trajectory by providing access to many opportunities.

Seven employees and two board members share lived experiences with clients including growing up in rural communities, immigrating to the U.S. and being first-generation college graduates.

OTR began working with Scienaptic in August 2022 to develop a working prototype of the AI-Powered Credit Underwriting Platform that could make decisions as if it were an OTR staff member. OTR shared historical information on loan decisions, and Scienaptic used that information to build and test the platform.

The project entered the Monitoring in Production phase in March 2024. This involves comparing the platform’s recommendations to OTR’s actual loan decisions weekly for four to six weeks. During this time, Scienaptic produces an excel-based “swap set” analysis weekly to compare and review applications where the platform’s recommendation was different from OTR’s. The OTR team is documenting any responses from the platform that do not match expectations and monitoring for trends. The product will be live and able to serve clients by the end of May 2024.

OTR is applying because it believes that all individuals deserve access to financial and mobility equity through an inclusive lending experience.

COVID-19 was detrimental to OTR’s fundraising capability. As many professionals began working from home, it was difficult for some funders to understand how critical transportation still was for lower-income workers who largely were not able to work from home.  Like its clients, OTR demonstrated resiliency and grit despite other significant market challenges, including inflation, high cost of capital, high interest rates, and reluctance from financial institutions to invest. Used car prices were higher — up 56 percent, according to Manheim, an automobile auction company — which made it difficult to source affordable vehicles for clients. Inflation also had a significant impact on clients: Rising rent and grocery prices tested family budgets and their ability to make timely payments. Over the past year, the loan default rate doubled, reflecting the financial challenges that families living in the margins of a recovering economy face. OTR is currently analyzing data and factors associated with defaulted loans to determine trends to better understand how to ensure loan recipients are successful.

The economic factors associated with inflation and high cost of capital also impacted OTR’s ability to originate loans. In 2022 and 2023, it became much harder to qualify prospective borrowers for a loan because many required pre-loan support from partner agencies to increase their lending readiness. OTR also experienced an interruption in its ability to renew investments into OTR’s loan fund, due to unforeseen circumstances beyond the agency’s control. OTR spent months working with partners on new investment capital opportunities that it was able to secure in 2023. As the platform scales and OTR can approve more borrowers, it needs to be prepared with additional capital to fund their loans.

Since inception, OTR has been working to correct misinformation about what it means to have a subprime credit score. Many clients feel shame about their credit score, and those feelings and other cultural barriers can hold them back from seeking loans at all. The organization’s programming is designed to encourage clients to build trusting relationships with staff that help them to overcome these feelings. By offering support in better financial decision-making and referring clients to the loan fund, OTR helps these individuals become informed about their finances and successfully manage their loans. The organization is in search of additional marketing and communications support to disseminate its message that everyone deserves to participate in the basic financial institutions of society.

OTR anticipates that it may need to overcome federal banking regulations as it scales and that market competitors may not see the value of an alternative-lending model at first. The agency welcomes legal and financial support in navigating these barriers.

In the face of these challenges, OTR’s mission and charge remain even more important — to create opportunities and empower individuals and working families to live their best lives through life-changing vehicle loans.

OTR is innovatively combining its alternative loan application and decisioning model, which includes interviews and detailed financial reviews with prospective borrowers, together with the power of AI to increase inclusion in the auto lending market. Applicants apply online and must be employed, have state-issued identification and have stable housing to receive a loan. OTR uses the applicant’s two most recent bank statements, or if they are underbanked, a list of monthly expenses and the last two paystubs, to determine loan eligibility and for what amount. During a phone interview, OTR helps clients evaluate their budget to ensure it can support the true cost of vehicle ownership by considering insurance, gas and other vehicle maintenance costs.

Once a client is ready to purchase a car, OTR helps them select one based on their budget and family needs. The ideal vehicle is fuel-efficient, two to four years old, has less than 60,000 miles and includes an extended warranty built into the loan product to ensure that clients can avoid the financial hardship of costly repair bills.

Financial mentoring and coaching, provided throughout the life of the loan (typically five to six years), is an essential element of the program. Clients’ ability to make timely payments that are reported to credit bureaus enables them to build or rebuild their credit. Most clients improve their credit score by 157 points or more over the term of the loan, making accessing credit more affordable and decreasing the need to pay high deposits for other services like utilities.

Ultimately, clients leverage their car loan to realize cost savings that can be a step toward home ownership and small business creation. In addition to improved financial stability, families with reliable cars also report a significantly shorter commute, granting time that can be spent with their children and on their overall quality of life. Since inception, OTR has facilitated 1,122 car loans totaling over $22.9 million.

As OTR scales, it expects mainstream lenders to adopt its alternative lending model because the platform will enable more profitable loans. With the use of AI, the platform’s decision-making accuracy will improve, which will mean more loans are made and repaid.

OTR’s theory of change is that the AI-Powered Credit Underwriting Platform will use innovation to create accessibility in a market that currently presents limited opportunities for credit-challenged borrowers, which will improve their access to affordable loans and increase their resiliency. This will result in a prosperity movement.

For individuals living in poverty, OTR helps to create opportunities for asset-building loans through car ownership using financial creativity to build its loan capital (from banks and investors). These loans make it possible for clients to access an average of $20,000 in savings, and this increased net worth creates future financial stability for themselves and their families.

The organization’s goal is to be a thought leader on mobility equity to change public policy and attitudes on transportation equity. The AI-Powered Credit Underwriting Platform will help reduce the amount of time that staff spend reviewing loan applications while increasing positive outcomes for clients. These results will be scalable for other financial institutions.

Its theory is supported by its outcomes. In 2023, OTR engaged the Carsey School of Public Policy’s Center for Impact Finance at the University of New Hampshire to conduct an independent review of the vehicle loan program. During this review, OTR clients reported the following as a result of their car loan:

• 80 percent said they got a better job;
• 80 percent said they felt healthier;
• 100 percent said their children’s lives are better;
• The majority of loan recipients experienced significant credit score increases.

OTR’s impact is best illustrated through the story of a client named Alejandra, who is a single mother of three children making $35,000 a year. When she came to OTR, her credit score was 540, which is deep subprime. She was driving a 2009 Chevy Traverse that had 169,000 miles on it. It was financed through a “buy here, pay here” dealer with a 23 percent interest rate. It had no warranty, and the loan included $3,000 in fees, which predatory lenders typically charge subprime borrowers as markups over the value of the car. Alejandra did a voluntary repossession, giving the car back to the lender. OTR provided her with a 60-month loan at 9.75 percent interest on a 2016 Nissan Altima that had 34,460 miles. It included a full warranty and gap coverage (which pays off a loan if it is considered a total loss after a wreck). The resulting financial benefits were significant, including:

• $3,000 in fees avoided;
• $7,030 in interest savings over five years (9.75 percent for 60 months, versus 23 percent for 72 months);
• $2,000 in repair expenses avoided due to warranty;
• $3,500 in fuel savings over five years per Department of Energy fuel efficiency comparisons;
• $5,000 in residual value of the vehicle at payoff.

Alejandra’s total financial benefit comes to $20,530. Just months after her loan origination, Alejandra’s credit score increased 53 points. At payoff, she should have a credit score in the mid-700s.

In 2024, OTR has the following goals, which align with the UN’s goal to “strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all” (UN, Target 8.10, 2015):

• Implement the AI-Powered Credit Underwriting Platform to originate 500 loans, an increase of 646 percent from 2023;
• Maintain a portfolio of 1,000 loans;
• Clients will leverage their loans to improve their overall financial wellness by 75 percent;
• Clients will increase their income by 55 percent and their savings by 65 percent;
• Clients will increase their average credit score by 65 percent in the first year with an average increase of 120 points over the term of the loan;
• Clients will make on-time loan payments 80 percent of the time.

Using SalesForce, the OTR intake team tracks the number of clients served, their demographics, address, credit score, date of birth and income. The underwriting team reviews the clients’ finances to determine eligibility and assist with budgeting. The loan closing team processes the loan documents and tracks the number of loans made. These metrics are reviewed by program staff and executive and board leadership frequently to inform program improvements.

OTR conducts an annual client survey to ask questions about increased income and other quality of life indicators. It is currently evaluating its survey and considering methods to improve response rates and data collection methods. 

Scienaptic’s Credit Underwriting platform is powered by adaptive AI and integrates with the loan origination software OTR uses to keep track of loan decisions. The technology is designed to accelerate the amount of time it takes to make a decision on a loan application, improve automation, approve more borrowers and reduce risk. Using Scienaptic’s proprietary LexisNexis models and risk segmentation logic, AI learned how to make loan decisions like an OTR staff member would, using historical loan decision data. This data includes the applicant’s identifying information (e.g. name and address), their application data (e.g. income, employment history, credit score, payment history), relevant credit bureau tradeline information and alternative data from platforms like LexisNexis RiskView and Experian Clarity. As OTR staff review the AI decisions and provide feedback, the custom model refreshes, leveraging machine learning. This creates a feedback loop that will continue to improve the platform as it functions. As loans are approved and borrowers begin making payments, this data will also be used to make future loan decisions with the goal of decreasing delinquencies over time.

The solution team has three full-time staff and one contractor.

OTR began developing the solution in August 2022.

OTR is committed to fostering, cultivating and preserving a culture of diversity, equity and inclusion (DEI). The agency believes the collective sum of the individual differences, life experiences, knowledge, inventiveness, innovation, self-expression, unique capabilities and talent that employees invest in their work represents a significant part of the agency’s culture and reputation.

OTR embraces and encourages employees’ differences in age, ethnicity, family or marital status, gender identity or expression, language, national origin, physical and mental ability, political affiliation, race, religion, sexual orientation, socio-economic status, veteran status, and other characteristics that make employees unique.

OTR’s DEI initiatives are applicable (but not limited to) practices and policies on recruitment and selection; compensation and benefits; professional development and training; promotions; transfers; social and recreational programs; layoffs; terminations; and the ongoing development of a work environment built on the premise of equity that encourages and enforces:

• Respectful communication and cooperation between all employees;
• Teamwork and employee participation, permitting the representation of all groups and employee perspectives;
• Work/life balance through flexible work schedules to accommodate employees’ varying needs;
• Employer and employee contributions to the communities served to promote a greater understanding and respect for DEI.

As a CDFI, the loan fund has committed at least 60 percent of its loans to low-income households or persons of color. OTR has intentionally recruited board members who represent different perspectives to ensure it remains a learning organization and serves all populations with dignity and respect. For example, On the Road Lending’s board chair is a member of the LGBTQ+ community and has made connections with LGBTQ+ nonprofit organizations and partners to improve how OTR works with this community and how the community experiences OTR.

Through annual anonymous surveys, OTR seeks continuous feedback from stakeholders to ensure the organization is living up to its mission and purpose. The board is 57 percent white, 43 percent Black, 57 percent female and 43 percent male. The staff is 62 percent white, 30 percent Hispanic/Latinx and eight percent Black. They are 62 percent female and 38 percent male. In addition, 30 percent of the staff speaks Spanish, and one is a recipient of the Deferred Action for Childhood Arrivals (DACA) program. The leadership team, specifically, is 66 percent male, 33 percent female, 66 percent white and 33 percent Black.

On the Road Lending is a nonprofit organization that raises philanthropic dollars to provide virtual financial education and support services to credit-challenged borrower who receive affordable auto loans from the CDFI. OTR is operating in Texas, Alabama, Georgia, North Carolina, Mississippi and Kentucky with a goal to expand to Florida, Indiana, Illinois, Minnesota, Missouri, Michigan and Tennessee in 2024. Expanding to a new state begins with a $1.25 million investment from the CDFI and is met with $300,000 in philanthropic support. This creates the lending capital for 50 vehicle loans and supports financial coaching services for these borrowers. To date, On the Road Lending has empowered more than 1,100 households with mobility autonomy. With an estimated $20,000 in economic impact per family, that is $22 million in wealth creation, helping working families transform their futures.

The funds needed to develop the AI-Powered Credit Underwriting Platform have already been raised and spent, and the software is accessed on a subscription model that costs $5,000 per month. As the product scales, OTR will hire additional staff to provide financial education and support services to borrowers.

In 2023, On the Road Lending received an estimated 90 percent of philanthropic funding from corporate and foundation grants and 10 percent from individuals. Major corporate partners that provide funding, strategic insights, intellectual support and/or social capital include: Bank of Texas, Goldman Sachs, JPMorgan Chase, General Motors, State Farm, Toyota, Live Oak Bank, Opportunity Finance Network, Capital One, Wells Fargo, Charles Schwab, Cadence Bank, and Veritex Community Bank. In addition to the agency’s ongoing fundraising efforts, OTR has hired a fundraising consulting firm, which has identified new funding opportunities.

The CDFI leverages $28 million, which includes a $10 million capital investment from Goldman Sachs and $18 million from other banks and investors, who earn a return on their capital while supporting those in need.

The agency continues to be an excellent steward of donor and investor resources, with 82 percent of expenses going toward programs, 13 percent toward administrative expenses and five percent toward fundraising, according to its 2022 990. OTR conducts an independent financial audit annually to ensure that financial practices are transparent and in line with generally accepted accounting practices.