The combination of rising unemployment, deferred payment programs coming to an end and Congress failing to reach a stimulus deal is creating the perfect storm for even more uncertainty in how to best assess and mitigate credit risk for credit unions’ and banks’ auto loans.
Credit Union Times reported that as banks and credit unions tightened lending standards and automakers increased incentives for prime borrowers, those with lower credit scores were left to turn to “finance companies or buy-here, pay-here car lots for used cars.”
According to Experian, the majority of financial institutions are shying away from nonprime borrowers, and those borrowers paid 17.78%, up 42 bps. CU Times also reported “credit unions held 12.1% of new car loans and leases in February, but their share fell to a low of 9.8% in June, with July showing an improvement to 10.6%. In addition, credit unions held 24.9% of car financing deals in the second quarter, down from 26.1% a year earlier and 28.4% in 2019′s fourth quarter.”
Consumers are struggling, but how can credit unions provide the support and auto loans they need? There is an opportunity for credit unions to stand out by shifting gears toward a more proactive credit-risk management approach. Now is the time to collect and analyze relevant data that provides deeper, more holistic consumer insights and re-evaluate underwriting criteria accordingly.
While some consumers may have a more difficult time getting auto loans than in the past, we all must mitigate risk so our organizations can weather the economic downturn and come out stronger on the other side for all of our stakeholders. To learn more about how Open Lending helps your credit union mitigate auto lending risk, click here!
Continue to find ways to work with your members, while also growing your auto loan portfolio with Open Lending. We review our proprietary data, collected for more than a decade, and incorporate other factors on car loans, such as loan-to-value, payment-to-income and other data. We came out of the 2008-09 housing crisis strong, and more than 95% of our credit union and bank partners were still able to meet their revenue targets.
Strategic risk management changes will not destroy your auto lending. Even in this atmosphere of uncertainty, making the right loans while maintaining the proper protections for your long-term business success is possible.