MADISON, Wis. – Credit unions are paying attention to the growing subprime auto loan market, but one expert said there are several important steps CUs must take if they are to expand their participation in this space.
Credit unions already make a higher percentage of their auto loans to subprime borrowers than banks. During CUNA Mutual Group’s sixth annual Discovery Conference Wednesday, Steve Hoke, director of loan growth products for CUNA Mutual Group, said the opportunity is expanding.
“Subprime customers took out $129.5 million in auto loans during the first 11 months of 2014, which represents more than one-quarter of all U.S. auto sales, the highest level since before the Great Recession,” said Hoke. “If you aren’t reaching out to your members and potential members with an auto loan offer at a competitive rate, then you are basically telling them to go elsewhere.”
Hoke detailed steps to take when reaching out to subprime borrowers:
Reward Good Behavior
“Provide members with an educational financial plan to teach best practices and build credit scores, so members are rewarded with more affordable credit in the long run.”
Mitigate Risk
“Offer insurance options for members to protect their auto investment while mitigating risk to a credit union’s loan portfolio.”
Maximize Digital Technology
“Utilize technology to instantly verify income and employment status. This will speed the underwriting process by indicating whether the member will be able to repay the loan.”
Recapture Existing Loans
“Capitalize on member loyalty by reaching out to current members who have refinanced at an outside institution through a pre-qualified, auto loan recapture program.”
Leverage Mobile Technology
“Increase direct loan activity by utilizing mobile apps. These apps allow members to research multiple vehicles, explore loan options and apply online. In return, credit unions reach tech-savvy members at the time of the purchase decision, manage the dealer relationship and provide quotes for insurance products. It’s a win-win situation.”
“Our forecasts indicate approximately 35% of loan transactions on loanliner.com will come through mobile in 2015 because members want to be able to interact with your credit union on the spot,” said Hoke. “Mobile lending not only engages tech-savvy members, it also leads to new opportunities to generate additional non-interest income for your credit union.”