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Business Growth

On Auto Loan Volume – Things Are Looking Up

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.

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Business Growth

The Early Bird Tactic to Growing Your Auto Loan Volume

According to the FDIC, cash is readily at hand as a record $2 trillion in cash hit the deposit accounts of U.S. banks since the beginning of the pandemic. With interest rates near zero, net interest margins have narrowed. Financial institutions would love to issue loans, but there are few opportunities to grow right now. Auto loans are a frequent go-to solution, but the pandemic has added a few wrinkles to that tried-and-true tactic.

Used car values typically decline during a recession, raising concerns about negative net equity on typically long-term 84-month loans. But analysis from Edmunds reflects there could be more demand for used vehicles versus new, as the cost of new units continue to rise and manufacturers continue to fall behind on production schedules.  

How can a credit union capitalize on the opportunity to grow their auto loan portfolio? The first step is to reach the car shopper early in their search. By the time a consumer visits a dealership, they are likely to have conducted an average of 13-14 hours of research. 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 to come to you.

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Business Growth

Member-First Thinking Secures More Loans

How would you describe these first few months of 2021? According to CUNA’s Monthly Credit Union Estimates, credit union loan growth continued to slow in January, including further erosion in new car lending. Total car loans nearly flattened at $381.7 billion, just 0.2 percent greater than a year earlier. New auto loans fell 5.8 percent to $140.3 billion, while used auto loans rose 4.1 percent to $241.4 billion. Though captives have gained shares in used cars, both banks and credit unions have been losing shares to captive lenders in the new car loan market.

However, there are positive signals on the horizon that bode well for auto lenders. Vaccine distribution is rolling out and COVID-19 cases are trending down across much of the country. A third stimulus package will deliver checks to millions of low-to-middle income Americans and income tax refunds should start rolling out in coming months.  With consumer confidence trending upward and unemployment numbers dropping, pent-up consumer demand for vehicles could drive customers to the dealership. However, much has changed for many consumers and their credit position. Auto lenders – especially credit unions – have an opportunity to boost their loan portfolio if they stick to one tried-and-true tactic. Always: put the member first.