Edmunds | Lending Curve

Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

After three years of marginal interest rate hikes, auto lenders and dealers are saying goodbye to zero percent financing offers. According to Edmunds, the average interest rate on new car loans climbed to 5.7 percent in March, representing a 5 percent year-over-year increase in interest rates.

Also in March, zero percent interest offers fell to 7.4 percent, representing an 11 percent year-over-year decrease.

Lenders that relied upon low interest rates to sell paper, now have to find different methods of differentiating themselves in the market. That’s why, according to CU Direct, credit union auto loan market share surpassed both banks and captives in 2017. Considering all the benefits credit unions offer members aside from rate, this spike in market share makes sense.

Other lenders could learn from the credit union model of diversifying the benefits they offer their customers to increase auto loan originations. Differentiate your institution beyond terms and interest rate with consumer protection products, such as limited powertrain protection, a vehicle service contract, or vehicle return protection. Products like these provide consumers with more value beyond interest rates and loan terms, while providing lenders with additional non-interest-bearing income potential.

Contributing Author:
Brien Joyce
Vice President
EFG Companies

According to Edmunds, interest rates on new-vehicle loans are expected to soar to their highest point in eight years. In an interview with F&I and Showroom Magazine, Jessica Caldwell, Edmunds Executive Director of Industry Analysis, stated, “We’re starting to see a trickle-down effect from the rate increases happening at the federal level. The Fed rate hikes directly affect unsubsidized loan rates offered by third-party lending institutions such as credit unions and banks, and, as a result, we’re seeing loans that were formerly between 2 percent and 3 percent being pushed up into higher APR brackets.”

New vehicle APR averaged 5.2 percent in February, representing a 4.9 percent year-over-year increase. Let’s not forget that we are expecting more rate hikes from the Federal Reserve in the coming months.

Combine this rate increase with a plateau in retail auto sales, and we can expect lenders to become more aggressive to shore up their dealer relationships. At the same time, dealers are highly attuned to customer retention and brand enhancement. To differentiate you institution and grow loan volume, consider how you are helping dealers address their concerns.

Evaluate your processes from the point of view of building a relationship:

Do you instill the value of providing superior service across your institution?
Are your dealer partners well versed in how you fund and your funding requirements?
How quickly does your institution respond to an application?