Auto lending in an online world
Ent Credit Union provides members what they need no matter the platform.
Car buyers have traditionally visited auto dealers to give their prospective vehicles a test drive before finalizing the transaction.
But that’s no longer necessary thanks to technology becoming a key driver in auto lending operations. Buyers can now go through the entire vehicle selection and lending process from home.
Online auto retailers such as Carvana and Vroom allow people to apply for loans and receive an immediate credit decision.
Automated decisioning engines and the electronic delivery of disclosures and other documents allow credit unions to filter through more applicants and loans. Technological advancements have also led to more competitors, including fintechs and Buy Now Pay Later providers.
“Many of these newer, less traditional competitors don’t make money and we’re starting to see their stock prices get impacted now that the Fed is pulling back on quantitative easing and interest rates are rising,” says Jon Paukovich, chief lending officer at $8.9 billion asset Ent Credit Union in Colorado Springs, Colo., and a member of the CUNA Lending Council. “They’ve never really been tested by an adverse economic scenario, and that could be happening now."
Paukovich says Ent’s lending operations haven’t been impacted much by the rise of online auto retailers. Ent hasn’t officially partnered with Carvana, but does business with them through their direct auto channel.
Various vendors have approached Ent looking for partnerships and promising great loan volume. Before forming a partnership, the credit union examines whether the incremental volume is worth the extra effort.
“It’s typically not,” Paukovich says. “I could give several examples of a ‘hot’ vendor with the next best mousetrap to drive loan volume that has gone by the wayside. We don’t want to get distracted from what we we’re good at.
“We’re currently the No. 1 auto lender in Colorado,” he adds. “We don’t have the lowest rates. We got there by providing good service and fast funding to our dealer partners and promoting them to our members.”
Regardless of how successful fintechs and online services are, Paukovich says Ent will continue to do what it does best. The credit union provides members flexibility and a smooth experience whether they prefer doing business in person, over the phone, or online.
“We serve our members how they want to transact business,” Paukovich says. “Most car buyers still want to see the vehicle, test drive it, and finalize the transaction at the dealer.
“We’re aligned with vendors that provide e-contracting as well,” he continues. “While it’s not a huge percentage of our business, it’s convenient for members and dealers who utilize it. If a member wants to go direct, we can serve them. If they want to work with Carvana or Vroom, we can finance their vehicle there.”
In the long term, he believes the biggest challenge to the traditional lending process could be that more car manufacturers might follow the Tesla model of bypassing dealerships. In that case, members will be able to build the car online, schedule delivery, and arrange financing.
Credit unions will have to watch how that trend progresses while remaining top of mind for members looking to finance, Paukovich says. It must be easy for members to get pre-approved and fulfill loans electronically.
However, credit unions’ best differentiator is that they work with members. Ent scrutinizes members’ used car transactions to make sure they’re legit and to protect potential buyers from scams on websites such as Craigslist.
“If there are title issues, we guide members and help them resolve the issues,” Paukovich says. “If the member is working with a franchised dealer, we can be more flexible in our policies to make funding the loan easier.
“Members want the ease of technology, but they also want to be able to reach a real person if they have questions or need help with their transaction,” he continues. “We want to make Ent as easy to do business with as possible."
