Lending Curve

Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

After three years of marginal interest rate hikes, auto lenders and dealers are saying goodbye to zero percent financing offers. According to Edmunds, the average interest rate on new car loans climbed to 5.7 percent in March, representing a 5 percent year-over-year increase in interest rates.

Also in March, zero percent interest offers fell to 7.4 percent, representing an 11 percent year-over-year decrease.

Lenders that relied upon low interest rates to sell paper, now have to find different methods of differentiating themselves in the market. That’s why, according to CU Direct, credit union auto loan market share surpassed both banks and captives in 2017. Considering all the benefits credit unions offer members aside from rate, this spike in market share makes sense.

Other lenders could learn from the credit union model of diversifying the benefits they offer their customers to increase auto loan originations. Differentiate your institution beyond terms and interest rate with consumer protection products, such as limited powertrain protection, a vehicle service contract, or vehicle return protection. Products like these provide consumers with more value beyond interest rates and loan terms, while providing lenders with additional non-interest-bearing income potential. Continue reading →

Contributing Author:
Brien Joyce
Vice President
EFG Companies

Millennials are in the market to buy cars. Are you in the market to lend to them?

According to Cox Automotive, Millennials are on pace to account for 40 percent of all vehicle sales by 2020. While it seemed like Millennials would never enter the market the way preceding generations had, this demographic is quickly making up for lost time.

Most of the Millennials with buying power today entered the job market around 2008 with record high student loan debt. Jobs were beyond scarce. High quality talent from Gen X and Boomers had flooded the market due to a markedly higher unemployment rate. It was virtually impossible for a recent college graduate to compete with a more experienced Boomer or Gen Xer for that entry-level job. Everyone was willing to work for less just to get by. These economic conditions made all those milestones of becoming an adult seem that much further away for Millennials. They deferred student loans, went back to school, moved in with their parents, and created innovative ways to save money.

A decade later, Millennials have a much greater ability to buy a vehicle, buy a house, get married and have children. However, their past experiences have greatly impacted their current buying habits. According to Cox Automotive:

83 percent say an affordable monthly payment is very important when selecting a lender.
39 percent financed their vehicle through a lender directly.
54 percent prefer to research financing options online.

Continue reading →

Contributing Author:
Brien Joyce
Vice President
EFG Companies

According to Edmunds, interest rates on new-vehicle loans are expected to soar to their highest point in eight years. In an interview with F&I and Showroom Magazine, Jessica Caldwell, Edmunds Executive Director of Industry Analysis, stated, “We’re starting to see a trickle-down effect from the rate increases happening at the federal level. The Fed rate hikes directly affect unsubsidized loan rates offered by third-party lending institutions such as credit unions and banks, and, as a result, we’re seeing loans that were formerly between 2 percent and 3 percent being pushed up into higher APR brackets.”

New vehicle APR averaged 5.2 percent in February, representing a 4.9 percent year-over-year increase. Let’s not forget that we are expecting more rate hikes from the Federal Reserve in the coming months.

Combine this rate increase with a plateau in retail auto sales, and we can expect lenders to become more aggressive to shore up their dealer relationships. At the same time, dealers are highly attuned to customer retention and brand enhancement. To differentiate you institution and grow loan volume, consider how you are helping dealers address their concerns.

Evaluate your processes from the point of view of building a relationship:

Do you instill the value of providing superior service across your institution?
Are your dealer partners well versed in how you fund and your funding requirements?
How quickly does your institution respond to an application?

Continue reading →

Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

In July 2015, BB&T Dealer Financial Services announced the launch of flat fees as the Consumer Financial Protection Bureau (CFPB) announced the expansion of oversight to larger non-bank auto finance companies. BB&T became the third auto finance lender to change their dealer participation practices, after Chrysler Capital and Santander USA. A domino effect quickly took place, with American Honda Finance Corporation, Fifth Third Bank, and Toyota Motor Credit joined the growing number of lending institutions either reducing their cap on dealer participation, or implementing flat fees.

In February, BB&T became the first auto finance company to reverse the trend, stating in an interview with Subprime Auto Finance News that the bank would be abandoning its flat-fee dealer compensation program and introduce a more traditional auto pricing program mid-March.

While BB&T plans to eliminate flat fees, we can still expect them to be more circumspect on the dealer participation cap than in previous years. In fact, Brian Davis, BB&T’s director of corporate communications stated, “BB&T remains firmly committed to the auto finance industry and to the fair and equal treatment of all consumers.” Continue reading →

Lending Curve

Say Goodbye to 0% Interest

Are You Appealing to Millennials?

Millennials are in the market to buy cars. Are you in the market to lend to them?

Interest Rates Dampening Your Loan Volume?

The Other Side of the Domino Effect