JUL 05, 2022
Lending partnerships provide credit unions and other financial institutions with flexible and scalable channels to grow and diversify loan portfolios — and these opportunities exist beyond the historical landscape of auto dealerships.
Although auto dealers are a common partner for lending programs, competition at the dealership is becoming increasingly fierce — with the total U.S. supply of unsold, new vehicles down by 40% YoY.
The good news, though, is that auto lending is not limited to the indirect dealer channel. Participating in auto loan refinancing can drive significant, sustainable growth opportunities for credit unions and other financial institutions.
For example, incorporating auto loan refinancing into a lending program enhances portfolio diversification, increases membership, and delivers a comparatively low-risk, high-performing asset. These loans can serve as a foundational component of an institution’s balance sheet, offering resiliency across credit cycles.
For consumers, auto loan refinancing offers the opportunity to unlock better rates and access more affordable loans — according to a recent Consumer Reports article, tens of thousands of prime and super-prime borrowers have been placed into loans with APRs of 10% or higher.
While some institutions may seek to generate new loans exclusively through internally-sourced origination, this approach carries high underlying fixed costs. As many lenders have found, attracting new customers and closing additional loan volume can entail a time-consuming and resource-heavy investment.
By contrast, the right lending partner can offer an institution a turnkey experience across the full lending cycle — including marketing, sales, and technical support. Such an approach enables lenders to scale their loan volume and increase their geographic reach without adding additional headcount or taking on additional fixed costs.
The direct spend an institution can avoid by working with a lending partner is often significant. For example, a well-functioning marketing program typically results in customer acquisition costs (CAC) of at least a few hundred dollars per funded loan. This number is often higher when factoring in the cost of an in-house marketing department or agency to launch borrower acquisition programs. Beyond marketing costs, originating auto loans in-house may entail growing call center operations and building teams to handle titling and collections.
Digitization and automation are playing a greater role in the automotive industry. Cars are becoming more autonomous, and more and more consumers are buying online — so much so that the global online car buying market is projected to reach more than $515 billion by 2027.
What’s more, consumers are prioritizing optimized digital experiences, with J.D. Power stating that “secure and easy to use sites were high on consumer wants” in their 2021 U.S. Consumer Lending Satisfaction Study.
Lending partners are often viewed by the consumer as an extension of the lender — and, often, deliver the first impression the borrower has with the lender. Leveraging technology-driven lending partners not only allows for portfolio growth, but can also provide borrowers with a seamless, digital-first lending experience. Ultimately, this increases the borrower’s overall satisfaction with the lending partner and lender.
For lenders looking to grow their portfolios through partnerships, some key questions to consider may include:
Implementation: How long does it take to get a partnership up and running? What are the staffing requirements for implementation and ongoing management of the program?
Marketing: How are borrowers sourced? Is a clear, consistent, and compliant message used throughout every marketing touchpoint?
Sales: Are there well-trained teams that will proactively engage with potential borrowers on the lender's behalf? (This will ensure high application efficiency, leading to increased profitability.)
In-house experts: Does the lending partner offer in-house teams who can handle the heavy lift associated with borrower acquisition and funding a new loan, including borrower agreements and titling requirements?
Integrations: What data platforms does the lending partner integrate with? How do they incorporate the lenders’ underwriting guidelines?
Compliance: What measures are put in place to support a compliant program?
Efficiency: What are the lending partner’s key efficiency metrics (e.g., approval-to-fund and look-to-book)? How are they facilitating an efficient process — for example, are borrowers pre-qualified through soft credit checks? Is there a QA team on staff to verify the accuracy of loan documentation?
Data and insights: Does the lending partner provide a forecast of expected loan volumes? Do they deliver regular updates about the program, industry best practices, and insights for ongoing optimization?
Expanded offerings: Does the lending partner offer alternative solutions to diversify the lenders’ portfolio outside of the initial point of sale?
At Caribou, we specialize in auto refinancing, driving more than $1 billion* in new loans to our lenders’ institutions.
We enable our lenders to break away from competition at dealerships and provide borrowers with an opportunity to save money on their auto loan at any point after their initial purchase. What’s more, we stay on top of the latest trends and technology — from using omnichannel marketing to attract borrowers to integrating with best-in-class platforms.
If you’re interested in how Caribou’s turnkey solution can help grow your portfolio and attract more borrowers, please get in touch. We’re eager to partner with lenders that are committed to our mission of saving consumers more money.
Learn how Caribou can help exceed your institution’s growth goals.
*Loan totals are based on the total number of funded loans as of Feb 6, 2022
Disclaimer: This post contains general information only, and Caribou is not rendering legal advice. Before making any decision or taking any action that may affect your business, you should consult qualified legal counsel. Caribou shall not be responsible for any loss whatsoever sustained by any person or company who relies on this update. Inclusion of any hyperlink or explanatory notes/summary does not imply any endorsement, investigation, verification, or monitoring by Caribou of any information in any hyperlinked site.
* Refinance savings may result from a lower interest rate, longer term, or both. There is no guarantee of savings. Your actual savings, if any, may vary based on interest rates, the repayment term, the amount financed, and other factors.
+ To check the refinance rates and terms you qualify for, we conduct a soft credit pull that will not affect your credit score. However, if you choose a loan product and continue your application, we or one of our lending partners will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
++ Social security number is required should you choose to move forward in the loan application process.
** APR is the Annual Percentage Rate. Your actual APR may be different. Your APR is based on multiple factors including your credit profile and the loan to value of the vehicle. APR ranges from 5.99% to 28.55% and is determined at the time of application. Lowest APR is available for a 36 month term, to borrowers with excellent credit. Conditions apply. Advertised rates and fees are valid as of 11/16/23 and are subject to change without notice.
Terms and Conditions apply. Caribou reserves the right to modify or discontinue products and benefits at any time without notice. Participating lenders, rates and terms are also subject to change at any time without notice. The information you provide to us is an inquiry to determine whether our lenders can make you a loan offer. If any of our lending partners has an available loan offer for you, you will be invited to submit a loan application to the lender for its review. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers. We do not guarantee that you will receive any loan offers or that your loan application will be approved. If approved, your actual rate will depend on a variety of factors, including term of loan, a responsible financial history, income and other factors.