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Have you ever asked yourself why people do business with your financial institution? When I ask our clients that question, the answers I get are usually:
“We offer low rates on loans and higher rates for savings”
“We give exceptional service”
“We’re easy to do business with, have online and mobile banking, and offer free checking”
These are all great reasons, but when you stop and think about it, aren't these the minimum standards of doing business? It’s no secret that consumers today have more choices and less time than ever before, and they’re bombarded with marketing messages that are all the same—i.e., low rates and great terms. Go to any financial institution’s website and you’ll see what I mean. This “same-ness” in message is causing people to tune you out.
In this blog post, we’ll share our insights about how financial institutions can separate themselves from the competition and generate more auto loans and non-interest income. We’ll also define the auto loan life cycle and give you tips for nurturing potential borrowers along every stage of their buyer’s journey.
The Auto Loan Lifecycle
Before making a purchase, every consumer goes on a journey. They identify a problem they’re having and become aware of a solution to their problem that’s available in the form of a product or service. They’ll educate themselves about the solution, maybe make some comparisons, and ultimately, make a purchasing decision. Once they’ve purchased the product or service, they enter a customer lifecycle that encompasses their entire experience, including the actions they take after purchasing.
We identified the five most critical steps of this buyer’s journey for your auto loan borrowers—the auto loan lifecycle. Focusing your messaging and sales processes around the following stages can help your auto loans resonate with your potential borrowers:
This phase is all about what your potential borrowers see, hear, think, and feel about your branding and marketing message versus your competition. We found was that most financial institutions market auto loans based on brand name and/or interest rate alone.
HELPFUL TIP: The key to a great auto lending/marketing strategy today is to have a message that goes above and beyond interest rate. Stand out from the crowd by showing you have those intangible and tangible assets that others simply don’t possess (or at least aren't touting if they do). By flipping the script on your customers and giving them a compelling offer, you will drive more loan applications.
Many financial institutions I work with have loan applications on their website, but many are cumbersome and difficult to complete from the borrower’s perspective. In addition, many consumers prefer to do business at night or on the weekends, when most financial institutions are closed.
Whether lending is centralized or done in the branches, you need to make sure the application process is easy for the borrower and as efficient as possible for your lending team. Quick decisions are important here, too. Nothing hurts your brand more than having applicants waits days or weeks to find out if they've been approved.
HELPFUL TIP: Instead of just informing someone of their approval status, give them more information on what to do next. All borrowers should be contacted by their loan officer as soon as possible, and if they are approved, arrangements should be made for closing. If they aren't approved, be sure to thank them for their loan application, give them some insight as to why they weren't approved, and then offer information on how they can improve their financial standing and gain your approval in the future.
This is a very critical phase and the area of most concern for financial institutions because this is where the risk lies that your borrower will choose another option for financing their vehicle. Losing the loan here means more than just losing a customer—it also means losing the opportunity to earn non-interest income from ancillary loan protection products.
Financial institutions that have the ability to accept electronic signatures close more loans than those that don’t, and tracking funding ratio (“look to book”) can help you understand what loans you’re losing and why. However, offering something of unique value will keep your borrower from going somewhere else.
HELPFUL TIP: A good way to get people to choose your auto loan every time is to make the closing process as quick and easy as possible—not just for your customers, but for your loan officers, too. If they have to go to several websites/applications to get the loan closed and the ancillary products/services ordered, this is a sign that they aren't set up for success, and your borrowers are going to notice. Make sure your loan officers have the tools and resources available to do their job as efficiently as possible.
This phase begins once the loan is closed and continues throughout the duration of the loan. The reality is, once the loan closes—in most cases—there is no ongoing communication with the borrower unless they get behind on their payment.
HELPFUL TIP: Just like any other business, once you get a customer, you have to keep them happy and engaged or risk losing them to someone else. Providing ongoing communication could actually set you apart from the competition—especially if it includes information that your borrower finds valuable.
The goal here is to have a robust recapture program in place to encourage your borrowers to finance their next loan with your institution. Knowing when the loans you closed (and the ones you didn't) are close to the end of their term, and having a formal process in place for follow up will significantly improve your results.
HELPFUL TIP: Check out this blog post to learn how to capture your share of the auto market.
Want to keep up with the latest auto lending industry trends? In our recent white paper, we cover the most significant factors affecting the auto lending industry in 2020, provide insightful analysis and a forward-looking perspective for 2021.
Click here to access our free 2021 Auto Lending Outlook White Paper.
Steve Castner serves as Regional AVP of Sales at SWBC and is based in Portland, Oregon. By leveraging the risk management products and solutions of SWBC’s Financial Institution Group, Steve helps his clients manage expenses, lower delinquency, and protect themselves and their members with cutting-edge technology and consultative-based solutions. Steve has 20 years of experience in sales and client service.