Why Credit Unions Have Hit the Accelerator on Car Loans

Credit Union of America had a problem. Its relationship with local car dealers was closer to “adversary” than “partner,” according to a case study cited by Credit Union Direct Lending (CUDL). “We were losing our members at the point of sale, at the dealership,” said Gary Hull, Lending Manager at Credit Union of America.

Securing an auto loan was requiring too many trips between the dealer and the credit union. Credit Union of America decided to take two steps to dramatically improve its auto-loan performance. It partnered with CUDL, a network of credit unions that works with 13,000 dealers nationwide, to streamline the loan process. And it made a concerted effort to cultivate relationships with local dealers. As a result, instead of merely passing along Credit Union of America’s business card to car buyers, dealers started recommending the CU. Credit Union of America saw its indirect auto loans grow by 42% over eight years. Also, partnering with 73 local dealers helped it nearly double membership from 25,000 to 49,000.

The credit union-car dealer partnership has been trending, leading to larger CU auto loan portfolios. Auto loans now constitute 35% of the credit union lending business. Last year, credit unions increased their U.S. market share of all car loans by 13.5%; their slice of the auto loan pie grew to 19.2%. Let’s explore 4 reasons credit unions are excelling in auto loans.

1. Special sales events leverage the synergy between car dealers and credit unions. Dealers have a ready inventory of vehicles, and credit unions set up on-site to make it easy to process loans. To maximize attendance, create a few event-only specials and discounts. Examples include “no down payment required” for one type of loan, or a gift card for simply showing up.
2. Credit union interest rates for car loans are at least 1% lower than those of banks. The average CU rate for a five-year new-car loan is 2.97%, compared with 4.5% for banks, according to Bankrate.com’s weekly rates survey. That means a buyer of a $30,000 car would save at least $1,100 in interest over the life of the loan.
3. Because they have strong community ties, CUs are more likely to help a borrower through a rough patch, such as a missed loan payment. Credit unions generally have more flexibility in the underwriting process, which favors borrowers with less-than-ideal credit scores.
4. Credit unions have shortened their turnaround time for car loans. The percentage of CU Direct credit union loan applications that are “instant-decisioned” (same-day decision) has increased and now exceeds 25% of all applications. CU Direct expects that number to climb to 50%. Instant decision-making increases the probability of closing the loan.

To sustain their strong performance in auto loans, credit unions should continue to stress the four strengths cited above. But they can also raise the bar higher by using text messaging to engage with members and prospects. Text messaging has a 98% open rate, compared to just 20% for email. Also, 9 out of 10 consumers want to use text messaging when communicating with businesses. Here are 4 ways text messaging can help credit unions grow their auto loan portfolio.

1. Offer auto loan applications over mobile devices. The ubiquity of mobile makes it essential that credit unions connect on their members’ preferred channel. Use secure links to send loan applications over text messages.
2. During the loan review process, credit unions can request and receive additional required information using the speed and high open rate of text messaging. In addition, CUs can text status updates to borrowers. Imagine a potential car buyer walking around a dealership, mobile phone in hand, awaiting notification of loan approval.
3. Give members the convenience of making monthly loan payments, securely and quickly, using text messaging.
4. The best way to foster loyalty and to cross-sell your products to members is to learn what they need and when they need it — and then deliver it. Sales teams can share relevant content with a member/prospect and receive insights on how well that content was received using data analytics.

Eltropy has a platform equipped with such capabilities. It uses text messaging (or email) and makes it easy to curate, manage, and share content. Grounded in analytics, Eltropy provides 20+ data points on content consumption so salespeople can follow up promptly and intelligently. In addition, the Eltropy AI engine tells salespeople which members/prospects to call first to close a deal.

Please reach out if you have a question or would like to see a demo of Eltropy.