Looking to increase your loan portfolio? Ever thought about lifestyle lending? A type of indirect lending, lifestyle loans support retailers, medical providers and businesses by providing financing to their patients and customers. These loans might cover the costs of dental work, surgery, adoption services, infertility treatment, remodeling projects, larger household purchases, funeral expenses, jewelry and musical instruments-almost any item or service consumers are interested in financing.
The data suggests strong potential results:
* Portfolios for lifestyle lending can reach $16 million in just two to three years.
* The average lifestyle loan amount is $4255, and the default rate is less than 1%.
* Most lifestyle loans-91%-are for non-members, and the average credit score of these applicants is 718.
In fact, when you consider these statistics, compiled by Lifestyle Lending Solutions over the past three years, it may seem like lifestyle lending is a "no brainer"-so easy that any credit union could or should "just do it." However, although lifestyle loans are typically less complicated than other types of lending, there are several key factors that can make or break your success.
As you think about setting up your own lifestyle lending program, be sure you pay attention to these three essentials:
1. Internal Support For Your Program
Give some thought to how you will manage and support a lifestyle lending program within your credit union. Keep in mind that lifestyle loans are both similar and different from indirect auto lending, and you will want to pay attention to the distinctions between the two. In addition, you do not want your lifestyle lending program to get lost in a much larger lending department.
Credit unions that achieve the best results with lifestyle lending typically designate one or two individuals to manage the program or establish a separate office to handle all lifestyle loan activity. This ensures that when providers or applicants have questions or concerns they will be able to speak to a knowledgeable person, someone who is committed to the program. Like every other facet of your credit union, good member service will be an important factor in your success, and this includes lifestyle lending.
2. Establish A Strong Provider Network
You will also need to establish a strong core group of providers within your community that can funnel applicants your way. From dentists to cosmetic surgeons, jewelers to home remodeling firms, the businesses that have signed on to offer lifestyle lending are numerous and varied. Some lifestyle lending programs provide assistance in reaching out to possible providers. You will want to see what resources each lifestyle lending program offers when you explore your system options.
You can also look within your credit union to see if you have any business accounts that might be a good fit for lifestyle lending. Some credit unions have set up a system of interdepartmental communication, so that every new business account is forwarded to a lifestyle lending point person as a potential provider.
Often providers find credit union-backed lifestyle loan programs a welcome alternative. Usually the interest rates are lower for their customers and patients -averaging 13.27%-and the terms are more straightforward when compared to other financing options they may have used.
In addition, it removes the risks associated with payment plans that the businesses may have been financing on their own. The practice or retailer is paid upfront by the credit union once an applicant is approved. Lifestyle lending is also an easy program for providers to manage in terms of budget; they pay a flat monthly fee for the service.
3. Assist Providers In Marketing The Program
Once you have providers set up on the program, you will want to work with them to be sure they have the support they need to market the program effectively. Providers should include the phrase, "financing available" or "low-interest rate financing available." on their websites and in all their advertising and marketing materials. Typically the lifestyle lending program will supply the providers with brochures and information for customers and patients. Ideally this information should be given to all potential customers and patients and on display at the business. People will need to know about the program to use it!
When you add it all up, it's clear that lifestyle lending is good for consumers, a plus for providers and great for credit unions. "Over the four-and-a-half years we've been offering lifestyle lending, 86% of the loans generated through the program have been for new members," said Pat Simmons, lifestyle lending manager at Mountain America Credit Union. "We also have had very good results selling additional services-checking accounts, credit cards and savings products to these individuals. Lifestyle lending has surpassed our wildest dreams in terms of helping us to grow our membership. It's been an outstanding tool when it comes to attracting new members."
Branwyn Rhodes is the director of communications for MeridianLink, Inc., developer of a channel account opening and loan origination platform and a provider of enterprise business solutions.
For info: www.meridianlink.com.
