The Big Shift: Top Loan Categories Driving Lending Growth at Credit Unions and Banks


‍Despite the current rate environment, outstanding auto debt in the US is nearing record levels. As of the end of Q2’2023, it sits at $1.54 trillion, per Federal Reserve research. Unlike mortgages, refinancing opportunities are significant in auto loans given the “rate markup at dealerships phenomenon”. On the retail front, the rise of Point of Sale (POS) lending options is evident, with adoption rates skyrocketing in recent years. A report from Statista Consumer Insights revealed that 56% of millennials have used "Buy Now Pay Later" services, a subset of POS lending.

These shifts present immense opportunities for improved lending methods. First, let’s dive into the auto loan sector, examining its potential for refinancing and debunking prevalent myths. Later, we touch upon POS lending, detailing its rise, strategies for successful implementation, and the advantages it offers to Credit Unions and banks. And, also highlight how CreditSnap is maximizing these trends to create superior solutions and deliver a world-class lending experience.
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1. Auto Refinance

The auto loan sector is evolving, highlighting significant refinancing potential. Let’s dive into the details:

Out of 73 million vehicles with active loans, a notable 58 million possess positive equity. This means the majority of these vehicles hold a value greater than the outstanding loan. This provides a sizable market segment ready for refinancing.

Moreover, the market value of the auto refinance sector is growing impressively. From its current standing at $47 billion, projections indicate it could reach $80 billion shortly. Two pivotal factors can enhance this growth:

- Increasing Awareness: Currently, out of every 100 vehicle owners, only 53 are acquainted with refinancing options. By enhancing awareness, there’s potential to engage an additional 20 million into refinancing

- Streamlining Access: Beyond mere awareness, ensuring that refinancing is easily accessible could further engage up to 29 million vehicle owners.
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Understanding Refinance Motivations

Diving into the reasons individuals choose to refinance can offer invaluable insights into consumer behavior and preferences. Here, we've categorized the primary motivations behind refinancing choices:
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- Cost Savings: A significant 86% look to reduce their monthly financial obligations, even by modest amounts.

- Brand Loyalty: 10% are more inclined towards stability in their financial dealings, with minor fluctuations.

- Accelerated Payments: A minority at 4% are geared towards quicker loan settlements, even if it means a slight increment in monthly payments.


Addressing Auto Refinance Myths

There are plenty of myths about auto refinancing. Let's address some of these misconceptions.
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- "Majority of auto loans aren’t suited for refinancing": Contrary to this, 80% of auto loans have positive equity, making them optimal for refinance options.

- "Current interest rates hamper refinancing": Auto dealerships usually mark up interest rates, leaving room for refinancing even with today's rates.

- "Primarily those with subpar credit engage in refinancing": This isn’t the case. In reality, 68% of those refinancing have prime or even better credit standings.

- "Auto refinance bears equivalent risk as standard auto loans": Refinancing doesn't involve car title risks. Plus, since refinancing usually follows the peak period for loan defaults, it naturally carries a lower risk.
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2. POS Lending

Credit Unions and Banks have shown mixed reactions to Point of Sale (POS) Lending, a credit option at checkout. While some hesitated due to regulatory issues, others saw the business potential with the rising "Buy Now Pay Later" trend. 

Larger Banks and Credit Unions are now teaming up with local merchants to offer these loans. This strategy makes sense, as a McKinsey study found 60% of consumers are open to using POS financing, and notably, 65% of those have strong credit scores over 700.
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The Ascent of POS Lending

In the U.S., BNPL, closely related to POS Lending, has seen substantial growth. From 2021's $42.64 billion to a predicted $143.44 billion in 2026, it's a threefold rise. This trend underscores the market's strength and a clear shift towards flexible payment options in consumer behavior.


Blueprint for Successful POS Lending Implementation

As the trend towards alternative financing methods like POS financing grows in the retail banking sector, financial institutions have an opportunity to evolve and meet changing consumer demands. Here's a blueprint for successful POS lending implementation.

1. Optimizing Existing Resources: Rather than starting afresh, Credit Unions and banks can capitalize on their existing Unsecured Personal Loan programs. By tailoring these programs, they can seamlessly integrate into the POS Lending model.

2. Prioritizing Instant Approvals: The instantaneous nature of POS purchases requires financial institutions to pivot from traditional approval methods. Implementing an immediate approval strategy becomes essential to cater to on-the-spot financing needs.

3. Merchant-Centric Approach: Instead of diving headfirst into the competitive world of retail lead generation, Credit Unions and banks would benefit from forging partnerships with merchants. This strategy pivots the role of merchants, positioning them as primary lead generators.

4. Harnessing Automation: To ensure scalability while optimizing costs, an integrated automation platform is crucial. By connecting the lending system to a POS portal, CUs and banks can offer a streamlined, self-service experience to consumers.
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How CreditSnap is Redefining Lending?

CreditSnap is revolutionizing the approach to lending. Through advanced technology and intuitive features, it's not just about lending anymore—it's about lending smarter. Here's how CreditSnap is making a difference:
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Auto Refinance

- Lead Acquisition: Through CreditSnap, financial institutions access a curated pool of valuable refinance leads, simplifying the search for potential clients interested in auto refinance options.

- Tech-driven Outreach: Utilize CreditSnap's cutting-edge refinance technology to effectively market refinance products to your existing clientele.
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POS Lending

- Cost-Effective Solutions: CreditSnap offers a blend of affordability and sophistication, equipping businesses with the tools necessary for a successful POS lending launch.

- Merchant Focus: Instead of diluting resources, CreditSnap enables Credit Unions and banks to concentrate on essential merchant partnerships, ensuring a robust foundation for their POS lending services.
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CreditSnap Differentiators

1. Streamlined Account Onboarding: CreditSnap deploys the latest account opening and pre-qualification methodologies to offer a world-class user experience.

2. Credit Protection: The innovative soft inquiry tech effectively preserves credit health and provides instant offers tailored to borrowers’ specific financial needs.

3. Reduced Card Declines: CreditSnap's lending platform not only significantly decreases card transaction declines, but also expedites resolutions with processors and issuing banks.

4. Data-Driven Cross-Selling: Powered by machine learning, the modern lending and account opening platform identifies and targets cross-selling opportunities effectively.

5. Empowering Customers: Next-gen self-service tools along with a superior user interface give customers greater control and an unparalleled overall experience.
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The evolving financial sector showcases significant opportunities in both auto refinance and POS lending. With a substantial majority of vehicles holding a value greater than their loans, there's a vast market awaiting refinancing exploration. Concurrently, the rising appeal of "Buy Now Pay Later" has positioned POS lending as an increasingly attractive proposition for financial institutions.

By integrating CreditSnap's cutting-edge features, banks and credit unions can optimize modern account opening methods, protect member credit health, reduce card rejections, and offer world-class self-service capabilities. Now, you can experience the transformative power of CreditSnap for your institution. Request a seamless demo or connect with us at community@creditsnap.com.