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    Lending | 3 min read

    Use Loan Protection Products to Accelerate Sales

    2018 is shaping up to be a slower year for auto sales and lending after two years of record-setting sales. Interest rates are increasing, and while those increases aren’t jaw-dropping, they’re likely to stop some auto buyers and borrowers from replacing their vehicles.

    Higher auto loan interest rates increase monthly payments, which can push buyers to consider driving their existing vehicles longer than they originally hoped or intended. Longer-lasting, more dependable vehicles have made driving an older car much easier and more popular in recent years, with the average age of U.S. cars on the road now at 11.5 years, over two years older than the average just ten years ago.

    Drivers who have no choice but to buy a replacement vehicle are more likely to consider buying a used car over a new car when interest rates—and therefore their monthly payments—rise. Used cars may be easier than ever to find, since the popularity of leasing has led to large numbers of late-model used vehicles returning to dealerships. Unfortunately, of course, used cars don’t offer as many auto lending sales opportunities as new vehicles, and the opportunities they do offer are usually not as substantial.

    Auto Lending Roadblocks

    When conditions create roadblocks to auto lending sales, we must find new roads to selling.

    • While loosening lending guidelines and lending to sub-prime borrowers is an option to locate new borrowers, the risk of default increases as lending criteria loosen, making the benefits and outcome of this option hard to predict.

    • Loan protection products allow you to increase non-interest income by providing services to new borrowers and opportunities to sell to borrowers your credit union may not have been able to serve previously.

    Accelerate Sales with Loan Protection Products

    Loan protection products, such as Guaranteed Asset Protection (GAP), provide a way to demonstrate your credit union’s value to members, improve member retention, work with new members, and increase non-interest income.

    • When added to a financed vehicle, GAP helps cover the difference between a borrower’s auto loan balance and the insurance payment after a total loss, providing valuable relief from paying on a loan for a car that’s no longer operational.

    • As vehicles and purchasing behavior have evolved, loan protection products have kept pace. The latest evolution in GAP is GAP with PowerBuy®, which includes benefits to help with vehicle depreciation costs.

    • GAP with PowerBuy pays a depreciation benefit up to the amount of the borrower’s purchased PowerBuy benefit amount. Your credit union is guaranteed return business since borrowers are required to finance their replacement vehicle with you in order to redeem their GAP with PowerBuy benefit.

    • Due to its depreciation benefit, GAP with PowerBuy provides a way for you to serve additional customers, such as borrowers who made a large down payment and may not see value in a traditional GAP product.

    • Every sale of protection products generates non-interest income for your credit union.

    While 2018 may not break records for auto sales and lending, you still have the opportunity to make this a successful sales year. By following new roads to sales, such as the wide range of loan protection products available, your credit union will be on its way to making up for any dip in auto lending sales.

    To learn the latest auto lending trends and activity, find ways to improve your auto lending program results, and learn tips for focusing on promising borrowers, download our free ebook.

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    John DeLuccia

    As Account Vice President for SWBC’s Financial Institution Group, John DeLuccia services Florida and Virginia financial institutions within lending services, insurance, and loss mitigation programs. Before joining SWBC in 2007, John worked with the Federal Reserve Bank as a Member Relationship Manager for Southeast Corporate Federal Credit Union, serving clients across South Florida, U.S. Virgin Islands, and Puerto Rico.

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