By Ray Birch
IRVINE, Calif.—Just as the pandemic is changing consumers’ car-buying habits, so too is it altering how borrowers look at vehicle refinancing, asserts on expert, who sees a “big, growing opportunity” for credit unions.
Jeff Hutcheson, founder and co-CEO at AUTOPAY, believes the pandemic has added automobiles to the list of things consumers are increasingly willing to shop for remotely, including having the vehicle delivered to their home. He said a similar shift is also occurring as more consumers realize they can get a loan at the dealership and then refinance with their credit union.
“It’s been a heyday for indirect lending for quite some time, but with the paradigm shift we’re experiencing…more consumers are seeing how refinancing can play into things,” said Hutcheson during a recent Origence webinar titled “Capturing Auto Refinance Opportunities.” “Consumers now realize there are more financing options out there for them, and that financing does not stop at the dealership. They realize refinancing can be done after they purchase their cars.”
Hutcheson asserted the shift will help further level the playing field for credit unions in the vehicle financing market and drive more loans to CUs that don’t come from the auto store.
“I am not saying dealer financing will be impacted dramatically, but this is a big, growing opportunity for credit unions,” he said.
During the webinar, which outlined how credit unions can bring in additional loan dollars through auto refinance companies, which charge a fee for loans credit union books through them, panelists addressed how the companies partner with credit unions to bring in loans that fit the CU’s lending targets and risk appetite.
Higher Look-to-Book Rate
Reid Rubenstein, founder and managing partner at RefiJet, explained his company handles the marketing for the loans, the applications and documentation, with the apps then sent to the credit union for a decision.
“It’s turnkey,” Rubenstein said. “In many ways it is just like your indirect relationship with dealers…We are going to come to you through the CUDL platform just like your dealers.”
Rubenstein said the look-to-book rate with refinancing deals through his company is typically above what credit unions receive through their indirect dealer partnerships.
“We know your guidelines, we know what you want,” he said.
Panelists explained the loans typically carry APRs of 7%-11%.
“Often these are first-time buyers paying 18% to 25% on the loan they received through the dealer,” said Rubenstein. “They are paying the higher rate because they have little credit history. And we see that these loans perform, usually as well as those from members paying 3%.”
As other experts have stated, obtaining a very recent snapshot of a borrower’s financial situation is critical during the pandemic. Panelists stated their companies request a paystub no older than two weeks.
Verifying Employment
Julie Shinn, VP of lender management at RateGenius Loan Services, said the focus for risk now should be just as much on verifying employment as it is on demographics and FICO scores.
“We have to get proof of recent income, a paystub from the last 10 to 14 days,” Shinn said. “That is one important way we are mitigating risk now.”
The panelists further suggested borrowers can be “mispriced” at the dealership by several hundred basis points on their loans.
Shinn emphasized just because the credit union is lowering someone’s rate doesn’t mean competitive pricing can be ignored.
“Do that and you risk the borrower will flip to another lender,” she said. “The goal is to get them in the credit union and keep them there.”
Stronger Members
Bill Lynch, senior director of strategic alliances at Origence, emphasized how refinance customers can become stronger members than the typical indirect borrower.
“These are people whose lives you are improving,” Lynch said.
And that builds loyalty, added Clarence Strong, VP of sales and operations MotoRefi.
“You are getting good loans that perform and getting good yields—and you are changing people’s lives, which will lead to them using more of your products and services,” Strong said.