We have officially turned the page into a new year and a new administration. Lessons learned from 2020 are still fresh, and there appears to be plenty of momentum on various financial fronts that lend to a positive outlook. Here are some key points to consider.
The Federal Reserve has indicated it plans to keep interest rates at near zero for the next two to three years. Pending a third stimulus package, improved employment numbers, heightened consumer confidence, and the pace of the recovery, it’s possible that we will see auto lending growth as early as Q2.
According to a recent TransUnion 2021 consumer credit forecast, the financial institution found that consumer access to credit cards and personal loans is expected to rebound through the first half of 2021 while new auto loans will shift toward lower risk consumers. Despite potential obstacles to the consumer credit market, TransUnion foresees positive trends buoyed by expected improvements in macroeconomic factors such as unemployment and GDP.
Lenders will need to utilize all available tools to compete…
For credit unions striving to increase their auto loan portfolio, lenders will need to utilize all available tools to compete for those attractive loans. Overall, credit unions pivoted quickly in 2020, adopting digital tools and processes that served clients outside the traditional four walls of the credit union. Consumers are more comfortable banking remotely and this trend will continue. However, technology must improve to speed loan processing, giving consumers increased transparency and confidence. Credit unions who actively promote their ability to work remotely will have an advantage over entities who cling to the old traditional methods.
While remote servicing is becoming the norm, attention to cybersecurity, identity fraud, and any new compliance regulations should be top of mind. The remote nature of lending places an increased burden on credit unions to diligently guard against fraud, while also keeping an eye on the latest cybersecurity threats. Consumers are also painfully aware of these threats and are more likely to welcome a lender who offers enhanced protections.
Lastly, all lending institutions will advertise low introductory rates and manufacturers are expected to have a plethora of incentives as new-vehicle inventories rise. Savvy credit unions will need additional value-adds to incentivize their members. Strategic credit unions are already investing in providing complimentary consumer protection products, like vehicle return protection from EFG Companies.
Vehicle return protection gives members the confidence to buy their next vehicle by relieving them of their lease or loan obligations when unforeseen life events like these occur:
- Involuntary Unemployment
- Temporary Interruption of Employment
- Physical Disability
- Mental Disability
- Critical Illness
Credit unions giving their members the freedom to walk away from negative equity without affecting their credit are well positioned to increase auto loan volume and market share in 2021, while also protecting their auto loan portfolio from the risks of delinquency and default.
While we are entering 2021 with many unknowns, we can be confident that credit unions that continue to put their members first by providing the right combination of consumer protection products and digital safeguards, will enter the recovery in a sound position.