Tag: credit unions

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When Not to Turn the Other Cheek

Credit unions continued to demonstrate resilience in navigating some of the challenges of the last quarter: income declined from the third quarter; provisions and actual charge-offs rose, but auto lending still weakened. Providing a snapshot of the overall industry, the nation’s Top 10 credit unions in the U.S. suffered a drop in ROA and higher-than-expected credit losses. While the Top 10 bolstered their provisions for the quarter, and charge-offs were smaller, delinquency rates rose, reflecting some potential cracks in the overall health of the economy.

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Business Growth

Pre-Qualification Boosts Car Loans

Earlier this year, used-car retailer CarMax launched a pre-qualification capability that reveals personalized financing terms, including the monthly payment and APR. This new online financing tool empowers customers to shop vehicles nationwide, with no impact to their credit score. Filters such as down payment, length of loan, and monthly payment can be adjusted, showing only those vehicles that meet their budget parameters. According to company executives, budget continues to be top of mind for consumers in the current economic environment of inflation and rising interest rates. CarMax intimated that conversion rates were very high for buyers utilizing the pre-qualification tool.

While online loan applications are nothing new, a pre-qualification tool that provides monthly payment options and APR without affecting the shopper’s credit score could be very valuable for your credit union. The bigger step is reaching customers and informing them about your tools before they start shopping for vehicles. Savvy CarMax leaders took a page from the marketing best practices playbook, with a press release, social media ads, and search optimization ads. End result? Increased loan volume, increased used car sales, and a bevy of data on consumer financial health to guide future pricing and loan rates.

Your credit union might already offer a quality pre-qualification tool, but how are you getting the message out?

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Business Growth

Hedging a Seven-Year Auto Lending Bet

According to credit bureau Experian, 19 percent of new-vehicle debt and 11 percent of used-vehicle loan terms were 84 months in 3Q 2022. By comparison, Experian data revealed that only 11 percent of new-vehicle borrowers and 4.1 percent of used-vehicle borrowers in 3Q 2018 were on the hook for an 84-month auto loan. That’s seven years of debt on a vehicle that begins to depreciate the minute it’s driven off the lot. Outside of lending terms, how is your credit union hedging its bets in the automotive lending space?

Rising vehicle costs, rising inflationary interest rates and continued concerns about the economy have prompted buyers toward lower monthly payments and longer-term loans. Lenders are also willing to offer pre-approved rates at upwards of 96-months on the strength of interest-derived revenue and low delinquency rates. But, how long can that last?

The state of auto lending is not a one-dimensional picture. Let’s look at some details to get a better view of the rewards – and risks – of long-term auto loans.

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