By John Flynn, CEO, Open Lending
Consumers’ credit scores are critical to making safe, profitable loans that benefit your credit union and its members, but they are not the only consideration. Plenty can be done to mitigate the risk of making near- and nonprime loans, ensure a nice return and bring more consumers in the doors.
Even pricing for the associated risk of making a nonprime auto loan, credit unions still can make consumer-friendly loans that generate a return appropriate to the risk. Alternative data abounds, and Open Lending takes advantage of that to better assess the risk a credit union is taking on. I explain further in my opinion piece for Credit Union Times, Keep Lending Through a Downturn.
All borrowers are human and more than that one snapshot in time a FICO score provides. Consider adjusting to acknowledge LexisNexis scores, which include education records, phone records, utility bills and more, to obtain a more comprehensive picture. One of the many discoveries we’ve made at Open Lending is that how long someone has lived in their home is a good indicator of their ability to repay their car loan.
Open Lending helps price auto loans to meet your institution’s target ROA, so your credit union can offer the lowest possible rate for the risk. That’s good for the borrower, too. Save them from the Buy Here, Pay Here financial nightmares! The average interest rate there is around 20%, according to Credit Karma. For example, Chartway Federal Credit Union’s auto loan interest rates last year ranged between 1.24% and 13.74%, according to ValuePenguin. A much better deal for the credit-challenged borrower.
After pricing for risk, Open Lending has its clients’ backs with our Lenders Protection program. We work with top-rated insurance carriers to cover the loans run through our program, should the borrower default. So, if the unfortunate happens, those loans are backed up to 80%.
What does that mean in practical terms for your credit union? Your near- and nonprime auto loan portfolio with Open Lending performs just like prime paper with four to six times the yield! Additionally, credit-challenged members are so grateful for the second chance they’ve gotten, they’ll often reward your credit union with more business. You’re their financial hero!
Contact Open Lending to learn more about how we can help you earn higher yields and say yes to more loans for which you’re already receiving applications. You can be up and running with us in weeks to start increasing your loan volume and profitability. Reach out today!