When making auto loans most credit unions look at the term of the loan, the age of the car or truck, and the creditworthiness of the member when determining the rate for the loan. Most institutions look at loan to value, debt to income and/or the credit score of the member before deciding to make or decline the loan request. But, very few credit unions look at the size of the loan when setting rates and all of them are missing out on a huge opportunity.
The three main factors when trying to meet profitability goals from a consumer loan portfolio are: 1) creditworthiness of the borrower; 2) term of the loan and 3) SIZE of the loan. Most financial institutions consider the size of the loan by the age of the vehicle. Many years ago the age was a good substitute for the size of the loan but not anymore.
Small dollar car loans are not nearly as profitable as larger loans when factoring in the costs associated with underwriting and servicing these installment loans. Even if the credit report and term of the loan are equal when evaluating a loan, credit unions should not offer the same rate for a $10,000 loan vs. a $25,000 loan, or a $50,000 loan.
Strunk’s loan pricing solution factors in all drivers of profitability and we will help you set rates based on your credit union’s target return. The tool is very inexpensive, easy to use, and will increase your credit union’s bottom line. In a recent meeting with a 25 year tenured CEO of a credit union she said “I’ve never heard of looking at the size of a loan to determine the rate for a loan. When can we get signed up?”
Contact Strunk 800.728.3116 or at email@example.com to learn more about our loan and deposit pricing solution.