By John Flynn, CEO, Open Lending
Buying a new vehicle is an exciting and scary time for anyone. They’re looking for the right, new – or at least new to them – vehicle, knowing they have to get approved for credit at a reasonable rate, and then be able to make an additional monthly payment while maintaining their vehicle. How do you help the potential borrower with these concerns while protecting your investment, especially with potential borrowers who are credit challenged? Cross selling is sometimes considered a dirty word in credit unions, but when the need and product is right, you’re helping the member.
This concern is well supported. At the end of 2018, auto lenders had funded more than $1 trillion in loans and 5% of those loans were delinquent, according to The Motley Fool. With average monthly payments of nearly $480 per month and loan terms averaging 68.5 months, the need clearly exists to protect your investment and the member during the finance period, with almost 17% of new auto loans coming from nonprime borrowers.
What are the proper programs to cross sell to the member that protect the member and the credit union? Providing additional value at a fair price to protect the overall investment is always in the members’ best interest. Customers today are used to buying packages, or bundles that offer a suite of related services, like your cable company or McDonald’s. Same goes for financial institutions.
Credit unions can offer all auto loan borrowers GAP, or Guaranteed Asset Protection, insurance. GAP is intended to cover the gap between what the car insurance company covers and the remainder of the loan when a car is totaled or stolen. Given how quickly vehicles depreciate once they’re driven off the lot, this is a great deal for everyone’s peace of mind.
Additionally, debt protection covers the loan during a time of unexpected job loss, disability or death of the owner. Particularly as we’re likely heading into a recession, this type of coverage is prudent for both parties.
Mechanical repair coverage is a smart idea for used or even new vehicles. This product covers service done to a vehicle and is especially important for credit-challenged borrowers who are likely buying a used vehicle to keep their payments lower.
Presented individually, they may appear to the member as additional line items the credit union wants to throw in to jack up the payments. But, offering them bundled within the loan payment amount that’s presented to the borrower right from the start might make them more palatable. Of course, we don’t want to be sneaky – this must all be made clear to the member up front, but the presentation is important. Offering them as discounted protection packages can still drive additional revenue and lower the overall risk of your credit loan portfolio, while also helping out the member.
Credit union can also use default insurance, such as Open Lending offers, to reduce the lenders liability should the member default. Open Lending plugs in additional, alternative data to determine creditworthiness that helps credit unions say yes to more loans. Plus, we cover 85% of the loan should the member default, and then do the collections work, too, saving your credit union time and money.
Building a quality relationship with your member is about offering them personalized bundles at the right price. By providing these packages to your borrowers, you’ll protect your members’ capital and better support the community by offering a hand up to those who need it.