5+ Trends in Auto Lending You Can't Afford to Miss

By John Flynn, CEO, Open Lending

July 2019 experienced a 1.8% decrease in auto sales versus a year ago, according to WalletHub.

That doesn’t mean it’s down for the count! WalletHub also found that 77.5 million Americans will be out kicking tires this Labor Day Weekend. That represents a great opportunity for credit unions, which have the best rates on the market.

Even though sales are down, prices on new and used vehicles are up. Interest rates on the average new car loan is currently 14% less than the average used car loan. Now may not be the time for prime borrowers to buy used cars as the average interest rate for them is up 43% since Q3 2016, but credit unions can still score big with used cars for their credit challenged members. See how Leaders Credit Union does it.

Consumers with fair credit are paying an average of more than $6,000 in interest over the 5-year life of a $20,000 loan over a borrower with excellent credit. Credit unions can do better for these consumers and still earn extra revenue. The average auto loan for consumers with a 600-credit score or lower pay three to four times more than other borrowers when purchasing a car or truck. That’s where Open Lending’s Lenders Protection comes in.

To learn more about Lenders Protection, click here.

Based on our analysis over two decades of helping credit unions lend to nonprime members, using various points of alternative data, that 600 could actually be equivalent to a 660. Fully 43% of FICO 600s could be much better risk than a simple credit score shows! And we back it up with Lenders Protection default insurance when deals do go south.

Originating these used car loans or refinancing existing loans are two ways that credit unions can keep up their lending during the economic downturn that’s been forecast ad nauseam in the mainstream news. Members are looking to cut expenses where they can and lowering their car loan payments from other lenders is the low-hanging fruit. Plus, manufacturers are beginning their end of model year clearances, which credit unions can keep an eye on and take advantage of in their marketing.

Contact Open Lending today to learn how we can help you say ‘yes’ to more loans!

But lending trends are about a lot more than simply rates and the economic situation of members; strategic considerations are thrown into the mix. Here are a few other trends to keep an eye on, according to Accenture:

  1. The popularity of mobility-as-a-service, like Uber or short-term rental services, are gaining in popularity, jettisoning some would-be borrowers. Traditional lenders must respond with their own strategies for owning the member relationship and removing friction, including partnerships with fintechs entering the market.

  2. Blockchain is becoming more mainstream for everything from insurance to fraud detection to turning vehicles into a mobile wallet.

  3. Using artificial intelligence to create smart sales channels, a traditional strong hold of lenders, will allow lenders and manufacturers alike access to better consumer data from which to build insights.

  4. The entire market will change as businesses and consumers are considering subscription models, shared ownership and more. Credit unions should consider how it can make loans on vehicles with multiple owners. Become part of the change!

  5. The car dealership structure will change as they decide whether to become the next Uber, consolidate or find some other way. Credit unions, particularly those in indirect lending, should keep an eye on their agreements as the business evolves for the future.

As the entire industry pivots – from dealers to lenders – so must credit unions. Cars are lasting longer and may be shared by multiple people across towns or owned as fleets for short-term rental. We must do what we can now to collaborate on the future and build strong relationships with our members by sharing our stories to become part of theirs.