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.
The Early Bird Gets the Loan
This early-bird tactic requires a robust online presence, with active engagement from your team. A multichannel online campaign not only helps ensure your offer is top-of-mind the moment members need an auto loan, but also creates a positive member experience. There’s no better indication of intent than a member asking to have their credit run for a new auto loan. Make sure your team is early to the party to capture the deal before it’s originated somewhere else.
Research shows that 28 percent of consumers have delayed their vehicle purchases as a result of COVID-19, which means that 72 percent might still be shopping, according to Cox Automotive. Many of those customers could be Gen Z making their first vehicle purchase on their own. Be a source of information for these new buyers, offering educational resources that help them make smart financial decisions. Teaching them the ins and outs of vehicle financing will help position your institution as a top-of-mind favorite when it comes time to signing on the dotted line, giving you the early bird advantage.
Speaking of education, build it into your exceptional online experience, including the secure capture of required documents and data required for identity and credit verification. Consider using alternative forms of credit data for those thin-file customers or those who have been battered by the pandemic. Recent research from TransUnion reveals options for non-prime loans that perform equally well when paired with credit-builder programs.
Lastly, to keep your loans secure and build lasting consumer relationships, include vehicle protection plans in your online consumer education package. Many new buyers are unaware of the savings available or even what makes your protection packages better than the competition. At EFG Companies, we serve as a partner with our clients to ensure they have the edge on the market with traffic-driving products and marketing solutions.
Our clients have learned that it’s no longer possible to compete on rate alone. That’s why they utilize our products, like vehicle service contracts and vehicle return protection, in their member messaging to increase auto loan applications and ensure members have a quality ownership experience.
Success in boosting your auto loan portfolio requires credit unions to compete not on interest rates, but on the value they provide their members. EFG has more than 40 years of experience helping clients differentiate their auto loan offerings to increase their market share and customer retention. Contact us today to learn more.