CUDL: Indirect Auto Loan Approvals Driven by Relationships
For some credit unions, the recipe for high auto loan volumes is a mix of strong relationships with dealers, fast response times and a dedicated staff.
Those were the findings from a white paper by the Ontario, Calif.-based CU Direct Lending Corp., an indirect and point of purchase provider of vehicle loans, that studied best practices for higher funding rates.
CUDL reviewed the 2011 auto loan applications processed via its CUDL lending platform to identify credit unions that had higher than average look-to-book and approve-to-book rates.
In its quest to shed light on how these credit unions achieved LTB rates above average,
CUDL interviewed these high-achieving credit unions and found that making the financing program easier to understand and speeding up communication helped to solidify the credit union-dealer relationship. While rate sheets can convey this information, CUDL said face-to-face interaction helped keep dealers on track with sending loan applications the credit union could fund, raise LTB rates and keep loan rejection rates low.
By following certain best practices, credit unions can obtain ratios in excess of 40% without giving away interest rate, said Bob Child, chief of staff for CU Direct.
"They are doing this as a result of building strong partnership relationships with dealers, incorporating innovative CUDL preapproval process that no bank offers, offering good interest rates, using credit union centric underwriting flexibility, and ensuring fast response times," Child said.
Auto loans have continued to rebound at a faster rate than any other loans since the Great Recession. According to Equifax, the most recent data show that the total number of outstanding auto loans in February 2013 was at its highest level in 45 months at more than 59 million. Auto loan balances stood at $789 billion, a 50-month high. A survey conducted by TransUnion revealed that credit union executives saw auto loans as the strongest way to grow their overall loan portfolios.
CUDL said that although the sample of credit unions interviewed did not set LTB or ATB goals in their annual plans, they did have an idea of where they wanted rates. Of the two measures, most credit unions had higher awareness of ATB levels, as the rate of approved loans that actually fund was of key importance.
Look-to-book, however, reveals data relevant to the volume of loans processed and funding rate. CUDL said changes to this value could indicate dealers submitting deals that don’t meet credit union guidelines and possibly flipping members to another lender.
Most credit unions interviewed with high LTB or ATB followed up with approved members that didn’t sign for the loan. Most said members weren’t flipped by dealers, as they were more likely to respect the credit union’s guidelines and desire to fund the loans.
For those that encountered members who were flipped, the credit union was often able to refinance the loan, according to the report. A majority of credit unions called pre-approved members that hadn’t financed with the credit union to identify the reason. Some made it a practice in their regular communication with the dealerships to follow up on pending deals to make clear they were anticipating the loans.
CUDL found that for the most part, delinquencies did not appear to be as affected by increases to look-to-book rates as by changes in the economy. The few credit unions that saw an increase over the past two years still had relatively low delinquency rates and attributed it to older loans.
Firms such as Securian Financial Group are hoping to fill some gaps left by the recession while helping members reduce delinquent debt. The St. Paul, Minn.-based company has launched an auto expense and auto insurance deductible debt protection program, which cancels one loan payment up to $500 when a borrower has an auto expense of at least $500 and cancels one loan payment up to $500 in the event of an accident where a deductible payment is made.
"These products were created with the borrower in mind and provide a lot of value for the lender too," said Kris Nelson, Securian actuary and director, credit protection. "These...help ensure that the borrower stays current."