Credit unions have seen many positive signs in the past couple of months. Interest rates continue to remain at record lows, cash deposits surprisingly have increased, loan delinquencies are down, the unemployment rate is improving, and auto sales are looking strong. For credit unions looking to increase their auto loan origination portfolio, the forecast for the coming quarters is bright. Let us unpack some of these details and ensure you get the greatest return on investment.
Credit union members added deposits faster than the institutions could lend them, resulting in a 19.1 percent YoY increase and a 12-month record. This influx in cash has prompted institutions to expand their loan criteria to capture a broader range of loan originations. Consider evaluating your loan approval process to consider those high-value customers who experienced a blip in their employment history, recently graduated from college but have a higher debt-to-income ratio, or thin-file clients who are adding a side gig and need a different type of vehicle. There are many strong indicators which can make these loans profitable and expand a credit union’s market share to new communities and demographics.
Federal cash infusions during the pandemic kept many customers afloat and current on their debt, despite unemployment pressures. As a result, credit union loan delinquencies are down, surprising many who increased their provision expenses and allowances anticipating a pandemic-fueled rise in unemployment. These cash customers who are entering the car market may look different, with high down payments or shorter loan terms.
With higher down payments, credit unions have a greater opportunity to increase the value of their auto loans with their members using ancillary consumer protection products, like a vehicle service contract or vehicle return protection. By protecting both the credit union and its members in the event of loss, accident or breakdown, consumer protection products can insulate your institution from risk while also differentiating your auto loan offering.
Auto Loan Competition
However, competition continues for the auto loan market. With consumers increasing their on-line purchase habits, many credit unions are left out of the mix. Recent data from Experian reflected strength in auto loan volume for banks, captives and other forms of financing, and a slight decline for credit unions.
Make sure to reach the car shopper early in their search. Offer proactive, pre-approved loans to members along with assistance in selecting the best deal for their credit position. Partner with members in their buying journey rather than waiting for them. A multichannel online campaign not only helps ensure your offer is top-of-mind the moment members need an auto loan but also creates a positive member experience. The key to capturing these customers is reaching them early, reaching them where they are, and reaching them with strong offerings. These are basic block-and-tackle tactics but are proven successful.
As the pandemic continues to wane and unemployment improves, the auto loan market presents a strong opportunity to expend some cash reserves. Be there with the best deal and you’ll get a great customer.