What’s That Car (Going to Be) Worth?

Handing Car Keys Over
(Last Updated On: July 11, 2022)

Your credit union has a lot to consider when helping members get auto loans before looking at the car’s value – today or 4 years from now. Think about all that’s involved; it’s impressive you handle anything else!

First, you help members find a competitive price on an available car. Next, you passionately educate about protection products and the enormous value they can deliver, especially in our toughest moments. Nudging toward that loan app the whole time to support your credit union auto loan growth.

Have you made sure your application is sleek, fast, and simple? Abandonment is a real thing. Ensure they also have a price on their current vehicle, which is helpful for total outlay calculations.

Or you could leave all this up to the member: 4 out of 5 people research financing on their own, and 30% get pre-approved online. Competitive rate aside, people rank “trust” as the deciding factor for financing, and that’s your credit union, right?

After more than 12 hours of research, your member has chosen their car, financing, and any ancillary products to support their financial goals. 

Unless they have superhuman negotiation skills, the car is more expensive than it was a few years ago. Should that be a concern for your credit union?

We know these inflated valuations won’t stick around forever. During the term of the loan, that car is going to lose residual value, likely faster than the member’s previous one. What does that mean for the member and your credit union?

New Ownership Risk

Euros and Tiny Car in Hand
Doesn’t it feel like this is what you get for your (European or US) money?

It likely won’t be this year, maybe not even the next, but cars sold in the current market will lose more residual, putting a member underwater on their car loan for longer than expected. It is safe to assume insurance companies will be the first to use accelerated depreciation.

Your GAP projection charts estimate the period of risk. How well do your members understand that it is likely to go longer? Make sure they see your credit union ancillary auto loan products as an investment rather than just an additional cost…that their credit union is looking out for them.

Sure, some members have the financial resources to absorb any unexpected depreciation, but most do not.

Risk in Credit Union Auto Loan Growth 

Vehicles as collateral is a trusted means of securing your credit union auto loan portfolio. What happens when that collateral rapidly loses value? Suddenly, your portfolio isn’t as secure as your careful underwriting aimed to achieve.

It’s not a huge issue so long as members continue to pay their loans, but what about total loss accidents not protected by GAP coverage? Will they pay for a loan on a car they don’t have, or will some become delinquent until a charge-off? No credit union wants either scenario for their members.

GAP protects both the member and the institution, while allowing for safer auto loan growth.


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Stand Up to Depreciation

GAP isn’t just a good revenue source; it’s an essential protection tool for everyone. Yet there’s one more product worth keeping on your radar: Depreciation Coverage.

When the cars credit unions are currently lending on lose their inflated value, as we all know will happen, GAP ensures no one ends up in a financial hole. Great. But what about buying a replacement vehicle? The member is made whole, but they might not have the money to buy the same car again.

Protect their ability to get back on the road – and your credit union auto loan portfolio – while garnering loyalty by ensuring car loan borrowers also are aware of this protection.

Protect. Educate. Sell.

Like a skipping CD, we repeat this concept a lot. Serving your members means educating them on available protection products, and actually selling them. We all hope no bad things happen to anyone. We also know reality and want everyone to be empowered and prepared.

Our company offers both GAP and Depreciation Coverage. Are they better than what you have? (My sales person is yelling “YES” right now.) Discover our entire Mission-Focused Toolkit in a 30-minute chat, where we learn your needs and goals. Until that conversation, be sure to Subscribe to the Learning Library and explore the other ways you can protect against larger market forces while growing credit union revenues and fulfilling your mission.

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Image credits: Raten-Kauf and Denis Belkin from Pixabay.

Joe Winn - CU Geek

Blogger. Speaker. Part-time Jedi.

Focused on helping your bank or credit union grow in the face of emerging challenges.