Credit unions can boost their bottom lines and serve the growing number of credit-impaired consumers by cautiously entering into the subprime arena, says Brett Christensen, owner of CU Lending Advice and former vice president of lending and sales at Clark County Credit Union in Las Vegas.
He says credit unions are “stabbing each other in the back” with low-rate auto loans aimed at top-tier members.
Christensen cites a credit union client that recently made a $20,000 car loan with a 30-month term and a 1.3% interest rate—and stands to make only $341 in interest. “They’re giving away money.”
In contrast, another client recently made a $16,000 auto loan with a 72-month term at a 15.9% interest rate. This credit-impaired member will pay $9,000 in interest—and get out from under a 22.9% rate at a bank.
“You have to do the math at some point,” says Christensen, who believes credit unions should embrace C-, D-, E-tier members—not only to grow loans and income, but to serve a greater swath of members.
“These members have the greatest need and the fewest options,” he says. “And if you help D- and E-paper members, they will be very loyal. Can the same be said of A-paper members?”
While there’s certainly promise in subprime lending, there’s also peril. Christensen’s advice: