Lending Curve

The much-maligned Millennial demographic often gets dinged for their different approach to financial matters. With the advent of online payment methods, many in this generation rarely set foot in a bank or credit union. They don’t write checks; they demand direct deposit; and they transfer funds among friends electronically. So when it comes to financing a vehicle this group is often lacking connections to lenders. Unlike their parents, or grandparents, they don’t have a “banker.”

Recent research fielded by EFG Companies queried more than 500 Millennials across the U.S. about their banking habits and preferences. 68 percent utilize a traditional bank, nearly 26 percent use a credit union, and 6 percent do not use a bank at all. When asked about where they would go to get money for a vehicle, more than 30 percent said they would start with the dealership, and 12 percent said they had no idea. More striking, more than 60 percent had no idea of the benefits of financing through a credit union. This knowledge gap only complicates an otherwise sketchy financial situation for many Millennials.

According to a PwC survey, only 24 percent of Millennials surveyed could demonstrate basic financial literacy. Of those who have begun saving for retirement, a third said they were “not sure” how their money was invested.  As a group, their financial situations are not strong, having launched their lives later, strapped with student loan or other debt, with lower or missing FICO scores, and a history of postponing large financial purchases. In fact, according to the Project on Student Debt, 68 percent of 2015 bachelor’s degree recipients graduated with an average student loan debt of $30,100 per borrower.

It’s no surprise to anyone after a challenging 2018 auto lending market that 2019 will have many of the same speed bumps. Rising interest rates, tightening credit, and rising new vehicle prices all combined to make last year difficult. The good news is that 2019 will bring some opportunities to better the odds of success.

Creative Competition

Competition is heating up in today’s flat auto lending market. Lenders who pulled out of subprime are re-evaluating that decision. However, in order to compete, lenders have found that they must slash rates in contrast to the Federal Reserve rate increases. As this is not sustainable, lenders must find ways to differentiate their auto loan offerings outside of rate. One way to accomplish this is through the use of complimentary consumer protection products.

Loans that offer complimentary consumer protection products can help you address the challenges of increased competition and delinquency control, while also providing additional streams of revenue. They differentiate loan offerings with consumers by providing valuable benefits. For example, a vehicle service contract can help significantly reduce the cost to repair a vehicle after a breakdown, keeping that vehicle on the road and consumers current on their auto loans, while protecting their bank accounts. Additionally, lenders have the opportunity to upsell consumers to greater/longer levels of coverage, increasing non-interest-bearing income.