Credit unions can turn auto loan customers into full-time members
There's no doubt auto lending in the U.S. is booming. CNBC reported that in late 2017 and early 2018, the average borrower took out slightly more than $31,000 for a loan to finance a new car, and about $17,000 for a used automobile. Both of these figures are record highs, as is also true of the monthly payments for loans on both new and used cars - $523 and $360 per month, respectively.
"Auto lending is reaching record highs across a number of different metrics."
Institutions such as credit unions are in a great position to take advantage of this, and they have indeed been increasing their participation in the marketplace. They accounted for 21.3 percent of all auto financing in 2018's first quarter. (This figure includes leases, which make up about 30 percent of new auto financing and 4 percent for used cars.)
But is this translating into viable new memberships for credit unions, or are auto borrowers going to them for an express purpose and not taking advantage of the other surfaces offered? The answer isn't entirely clear, yet it will certainly be wise for credit unions to do more to bring auto loan customers into the fold as more regular members. Using alternative credit data to evaluate borrowers may come in handy.
Selling customers on inherent advantages
Many full-fledged members of credit unions went to these institutions to move away from the more rigid standards and aggressive marketing practices of large-scale banks. Additionally, interest rates and loan terms can be more amenable to those who must live life frugally. In fact, the latter issue has evidence backing it up, as Experian's report found that the term lengths of auto loans have steadily grown longer of late.
However, there's more that can be done to bring auto-only members into the membership fold. Susan Hochsprung, vice president of sales for the Credit Union National Association Mutual Group, touched on this at a June 30, 2018 CUNA America conference in Boston. She recommended engaging new members immediately through carefully targeted marketing efforts and an expanded digital presence, both of which are particularly relevant in today's largely mobile-driven society. For example, auto loan customers might respond positively to email campaigns that emphasize services similar to those that interested them in car financing in the first place - anything from home loans with favorable interest rates to a rewards program for debit card use.
Don't neglect the credit invisible
Understandably, credit unions still want to avoid taking on unnecessary risk. But in some instances, customers who appear risky by conventional measurements are actually financially responsible - they simply have a small financial blueprint. The PRBC Mainstreet alternative credit scoring model measures everyday payments that FICO and other credit rubrics may neglect or undervalue, and helps small businesses, credit unions and other organizations broaden their customer base.