15-30% of Credit Union online loan applications are for Personal Loans. Whether for debt consolidation, paying for an unplanned expense, or a newer form “Buy Now Pay Later Loan”, your Members are taking out unsecured loans.
When getting a Personal loan, Members are expressing “I need money”. Rather than simply fulfilling their request in exactly the way they asked, we identified a lot of potential opportunities to help Members borrow more cheaply and equally as easily.
Turning Personal Loans to Auto Loans:
No surprise, Auto Lending is a cheaper means to borrow money than an unsecured, Personal Loan ('Personal Loan'). So when a Member asks for a “Personal Loan”, why don’t more Credit Unions help Members via a cash-out auto refi?
What the Member wants is cash. Why focus on the ultimate “type of borrowing” and instead of helping the Member borrow most efficiently?
In the following study, we’ll examine a few of the benefits on a per Member basis by looking at the Personal Loan and Auto Loan portfolios of approximately 10,000 Credit Union loan applicants. For the average Personal Loan:
A Member has borrowed ~$8kPays Approximately 14.8% APRHas a loan term of 48 Months
In comparison for the average Auto Loan, this same group:
Pays just 9.3% APR on average
The rate on the average Auto Loan is significantly lower than the rate on the average Personal Loan. The following comparison illustrates the Auto Loan and Personal Loan rates by credit score:
Auto Loan rates are far lower than Personal Loan rates. If we take a closer look, we can examine on an individualized basis just how much in APR savings potential there is:
We assume that the same Member simply moves debt from their Personal Loan to and Auto Loan they already have, i.e. we assume the Member did a “cash-out auto refinancing” and used the proceeds to pay off their Personal Loans.
By using the Auto Loan as a means to reduce Personal Loan rates, we find that:
The median individual would reduce his Personal Loan APR by 9.3%. 25% of individuals would reduce their Personal Loan APRs by 19.9%Over the typical 48 month term with an $8,000 median balance, the average borrower would save $1,700. Over 25% of borrowers would save over $4,000 over the loan life.
What to do:
OneMain financial is a Personal Lender who offers both traditional Personal Loans, (secured) Auto Loans and Title Loans. Doing so allows OneMain to not only reduce interest rates for their borrowers but also to serve lower credit tiers. Borrowers with lower credit scores have historically not been able to get (enough cash through) a Personal Loan.
A number of our Credit Union clients offer cash-out refinancing to their Members. We found that technology can do a tremendous job helping Credit Unions 'optimize the balance sheets' of their Members:
When a Member applies for a Personal Loan, our lending platform gathers data from several sources and determines the most affordable form of debt. In real-time, our lending platform calculates the rate of a cash-out refi and compares it to the unsecured Personal Loan rates:
Funding a cash-out refi “Auto Loan” may seem more complicated and more involved on first sight. Our Credit Union clients, however, find that:
the Clutch lending platform turns Auto Loan refinance into a 3-click exercise andAuto Loans often end up more profitable than Personal Loans because of higher loan balances and lower defaults.
What does this mean for my Credit Union?
How can I as a Credit Union leader help Members effectively and quickly? Give the Clutch auto loan refinance platform a try:
Set up and implementation takes 2 weeks only.Clutch can provide proven Playbooks of how to effectively leverage the platform to get the most out of every Member touchpoint.Ask for Clutch's references to compare notes on low hanging fruits and opportunities to delight your Members.
Our next piece will examine the loan categories that provide the biggest opportunities to deploy capital while helping your Members - stay tuned! And as always, if you’d like to discuss potential solutions and how digitized lending experiences can help, feel free to reach us out at contact@withclutch.com.