By John San Filippo
January is Lending Month at Finopotamus. Look for more articles related to lending technology.
It’s a problem that for decades has gone without a solution. A member applies directly to the credit union for an auto loan, the credit union approves that auto loan, and then … nothing happens. The loan is never funded. Depending on the credit union, the close ratio for approved auto loans typically hovers around 50%.
There are several reasons that a member might not use their approved auto loan, but chief among them is that franchise automobile dealers, with their own best interests in mind, often “flip” the member to some sort of in-house financing. Indirect lending is important because it allows credit unions to compete in that space, but the simple truth is that in auto financing, the greatest revenue for a credit union comes from direct auto loans where dealers and other intermediaries don’t take a cut.
LAFCU Turns to Tech
Los Angeles Federal Credit Union has deployed technologies from two companies that are helping the $1.2 billion, 75,000-member institution approve and fund more direct auto loans. The first is CuneXus, which provides a storefront of financial products that are pre-approved for each member on an individualized basis. The second is Loanify, which, through both a mobile app and live concierge service, seeks to streamline and shorten the member auto financing journey while driving more direct auto loan funding.
“CuneXus has been amazing for us,” said the credit union’s Vice President of Marketing & Business Development Marty Goodman. “It's the first time that a member can see their pre-approvals 24/7/365.” Goodman added that in the past, the credit union would mail a physical pre-approval letter and hope for the best.
“You may send out a letter in April, but maybe they're not ready until June,” he noted, adding that by then, the letter has long since been trashed. “The advantage of this technology, of course, is that their pre-approvals are right there every time they log in to digital banking.”
Goodman explained that there’s a link called “My Offers” that’s displayed when a member logs in to digital banking. “Whatever we pre-approve them for, it's right there in front of them,” he said. “Not only what they're pre-approved for, but the rate, the terms, everything. And if they want to change it, it’s very simple; they can click a button and change the terms.”
When Los Angeles FCU deployed the CuneXus solution, the credit union focused primarily on auto loans, although the platform can be used for any kind of loan or other financial product. Regarding the platform’s impact on auto loan pre-approvals, Goodman stated, “The loans that we have brought in have been beyond our expectations. It's been to a point where sometimes it's difficult to process all of them, which is, of course, a good problem to have.”
Closing the Deal
Pre-approvals are one thing; closed loans are another. According to CuneXus former Senior Vice President Barry Kirby (who left the company in late December 2022), even when a member “activates” their pre-approved auto loan, actually closing the loan still represents a challenge. “What typically happens a lot of times for these credit unions is the member goes to a dealership with the credit union’s pre-approval and the dealer goes, ‘Hey, we're going to put you with Ally or Chase,’ and they flip the loan at the dealership. This is a very challenging issue because the member just wants the car.”
That’s where Loanify comes into play.
“Loanify assists our members with the whole car shopping experience at the dealership,” said the credit union’s Consumer Loans Production Manager Maritza Lopez. “They're like an advisor. Through their mobile app, the member can reach a live advisor if they need help. They’re available after hours, which is a big help to us. They also help us by advising the member not to submit the application through indirect at the dealership level.”
Lopez said that even with a pre-approval, some dealers will push the loan through indirect lending just because it’s easier for them. However, she also noted that there are benefits to the dealer for staying with a Loanify loan. Among those benefits is faster funding.
“Several times, dealerships have reached out to tell us that they're willing to cancel the indirect loan application because they can get the loan funded faster on the Loanify side,” she added.
“Credit unions always put the member first, whereas most auto dealers put their own interests first,” said Loanify Founder Kirk Klinkhammer. “The problem is that credit union auto financing has traditionally been a cumbersome process, meaning the dealer has been able to create a more frictionless member experience. Loanify is changing all that.”
Klinkhammer said that without Loanify, once a member sets foot on the car lot, credit unions lose control of the loan. By making Loanify experts available via the mobile app through every step of the buying journey, credit unions regain some of that control and can therefore minimize loan flipping.
“We’re working toward streamlining the auto buying and financing process for credit unions, their members and franchise auto dealers alike,” added Klinkhammer. He said that as the Loanify credit union network grows, dealers will also benefit from free referrals from participating credit unions.
“We’re creating an ecosystem where all data and all funds will move effortlessly in near real time. We feel we’re reinventing direct auto lending for credit unions,” concluded Klinkhammer.