We are nearing the first full month with the new Administration and there has been a lot of activity from the White House. Vaccine distribution is rolling out, COVID-19 cases are trending down across much of the country, and Congress has a stimulus package to address. All of these actions bode well for the retail automotive industry. However, auto lenders have several other factors to consider going forward. The average interest rate on a five-year new car loan declined by 38 basis points, and the average four-year used car rate dropped 45 basis points during 2020 according to Bankrate.
Bankrate also predicts that new and used car interest rates will continue their downward trend. With shrinking interest rates and reduced volume, what steps can your institution take to bolster its auto loan portfolios, especially when competing on a low interest rate is no longer enough to motivate potential buyers to choose your auto loan?
One option is actively promoting auto loan refinance options. Simply helping consumers save a dollar can increase your auto loan income exponentially in this hyper-competitive lending market.
According to a recent podcast with Brendan Mathews from Motley Fools Ventures, a Google analysis revealed that searches for auto loan refinance was up 40 percent over the past year. Conversely, TransUnion reports that only 47 percent of consumers know that auto refinancing exists.
Clearly there is interest in refinancing and there is a clear need in the industry for consumer education on the topic. You have the opportunity to strengthen your institution’s relationships with existing customers and generate new business by actively educating the public on your auto refinancing options.
Additionally, auto refinance loans can be treated the same way as auto loans to increase your non-interest-bearing income with consumer protection products, like a vehicle service contract (VSC). Pairing VSCs with your loans can also help insulate your institution from the risk of delinquency or default by helping customers keep their vehicle on the road instead of in the shop.
With more than 40 years of experience helping clients with profitable solutions for their business, the EFG team is here to help you look for those opportunities that put your customers first, generating both near-term and long-term results for you. Contact us today to get started.