Only five years ago it seemed that always-connected millennials would opt for car-sharing and ride-hailing services like ZipCar and Uber over vehicle ownership to meet their transportation needs. However, recent studies indicate that young consumers are beginning to seek auto loans at a rising pace. A 2016 study conducted by LendingTree found that 33 percent of all loan requests on their online loan platform came from applicants age 34 and under, up from 27 percent in 2013. Additionally, the January 2017 Edmunds Lease Market Report finds that millennials use residual-based financing (balloon loans with a walk-away option and leases) more than any other segment as a proportion of overall sales. In fact, nearly one third of millennials who purchased a new vehicle opted to use residual-based financing, up from 21 percent in 2011.
Many millennials joined the workforce as the 2008 recession hit, but with dropping interest rates, lower gas prices and more wage stability as the economy improves, their outlook seems to be changing. Especially noteworthy is their preference for residual-based financing, which offers more affordable payments to a segment still burdened by college debt. As digital natives who expect to accomplish most tasks online, preferably on their phone, millennials are likely also attracted to a process that allows them to buy and finance a car in a more streamlined fashion.
What can financial institutions do to appeal to an up-and-coming demographic with huge potential upsell opportunities? They should offer financial products that allow them to compete with the flexibility and low monthly payments that a traditional lease provides. Other residual-based financing products, like balloon lending, offer many of the benefits of a lease with a few additional advantages, such as actual car ownership and more options at the end of the loan term. Financial institutions should also review their loan origination process. A simplified online experience and reduced paperwork can help an institution gain an edge over the competition.
Many organizations focus almost exclusively on the digital experience and build fancy online tools, but it’s also important to pay attention to offline aspects. Every interaction should be hassle-free and supported by excellent customer service. Additionally, if an organization opts for a residual-based financing solution, it shouldn’t forget about the end of term process. Here’s where the overall experience with a financial institution can shine. Customers should continue to have flexible options, just as they were offered flexible financing.
A seamless end-to-end process, on- and offline, is paramount to attract an age group using social media to voice customer service complaints directly to companies and to share many of their experiences – even a seemingly mundane interaction with a financial institution – with their peers online. By providing an excellent auto financing experience you will not only gain repeat business for future vehicle purchases from one single customer, but will likely benefit from word of mouth and build a relationship with a generation that will soon need many other financial services.
