Much like the proverbial "Top 10" list that CBS entertainment host David Letterman offers practically every night, based on our collective experience, we have painstakingly cobbled our own compilation of the best (10) ways to increase the quality loan volume for credit unions. Moreover, if you stick with the prescribed recipe, the end result will be very savory.
10) Dealer's Finance Reserve. Allowing the dealer to mark up the interest rate will result in significant loan growth in both high quality and marginal loans. Many credit unions do not allow dealers to mark up the rate. However, due to the competitive nature of auto lending, more and more credit unions are offering or considering offering dealers finance reserve.
9) Leasing. Leasing has increased over 20% in the last 12 months. Leasing is a sure way for credit unions to increase market share. Leasing provides increased interest income over conventional loans as well as draw a higher quality credit.
8) Make GAP insurance standard. Many lenders make GAP insurance standard by working the cost into the rate instead of charging a separate fee. Credit unions will gain or lose a number of loans each month by not including GAP insurance. Credit unions should consider this on loan terms of 60 months or higher.
7) Keep the application turnaround time to under 10 minutes. Auto dealers have many choices when it comes to lenders. Before vying for the dealers business through creative marketing, a credit union must offer quality service that begins with quick responses to credit applications.
6) Auto-approve as many deals as possible. Now that you have been auto approving loans for a while, take a closer look. See where you can tweak the scorecard to auto-approve loans that make sense.
5) Offer buy down program to dealers. Allow the dealers the opportunity to stand out by offering members and potential ones low rate financing - i.e. 2.9%. The dealer will pay the credit union the difference between the buy rate and the buy down rate up front with the funding package.
4) Max Advance. Almost all lenders maximize the amount a dealer is allowed to finance on new and used vehicles based on loan-to-value (LTV). In many cases, it's just as important for a lender to modify their maximum advance guidelines on creditworthy individuals. Allowing dealers, automatic allowances on warranties and other products on higher tier loans is one way to motivate the dealer to send the credit union more loan applications.
3) Communication/Relationship. Never underestimate the power of a quality relationship. This includes the relationship between the credit union and its indirect lending management company.
2) Incentives. Whether your credit union participates in a network indirect lending program or is on its own, it's important for a credit union to stand out among other lenders in their market. Offering dealer F&I managers an incentive program is one way to accomplish this. Motivating dealers to reach growth goals by winning prizes - i.e. vacations, plasma televisions, etc.-are some examples.
1) Rate Marketing. Having a lower "B" tier rate than your competition doesn't mean you get the loan if the loan application was submitted anticipating an "A" tier approval. Marketing your rates effectively plays a key role in the quality and quantity of loan applications you receive.
As with any other industry, the leaders in automotive indirect lending are easy to recognize. They are proactive, keep their fingers on the pulse, and consistently motivate their customers to do business with them.
While there are, admittedly, no guarantees in our business, it is essential to give your CU the best chance of success. The preceding top 10 list should get some wheels turning and provide some positive growth opportunity.
David Jacobson is the founder and president of GrooveCar, Inc., a Long Island, NY-based financial intermediary. He can be reached at david
