Today’s competitive landscape calls for many different loan growth strategies that range from a bit more squeezing of indirect auto channels to a plan to increase higher yielding consumer loans. Lenders today are still striving to achieve this optimal balance of return and risk, seeking growth through closer member relationships and better market penetration.
In a perfect world, we hope to achieve loan portfolio ‘nirvana’ with high loan deployment, solid loan growth, high loan products per member, growing market share, and the best product mix to maximize interest margin and risk. As you pursue your nirvana version of the loan portfolio, remember the desirability and importance of personal and unsecured consumer loans.
A clear path to optimize your loan portfolio
The good old-fashioned unsecured personal loans were the foundation of the early credit union movement. Access to personal and unsecured loans was our niche, and we tapped into it. Members were served, life improved, and credit union capital was built. I think there are still plenty of opportunities for credit unions to seek unsecured personal loans to meet a significant consumer need (which is in line with most of our mission statements) and to fill a small niche. but important in our loan mix: higher give loans that increase members’ relationships with their credit union. If you think an injection of high yielding consumer loans would help your overall portfolio return and improve member relationships, read on.
Here is some information on consumer loans to consider, reported in the Alternative Financial Services Lending Trends Report 2018 by Clarity Services, part of Experian.
Consumer need and demand
Online installment loans continued to grow in both number and volume of loans funded, while growth slowed in both categories for the online single compensation market. Not only have the average installment loan amounts increased, but consumers are also opening more loans per year. The overall growth in the volume of loans financed from 2013 to 2017 was almost 500%. Online installment borrowers have remained active in the market and used more credit each year. Between 2016 and 2017, average loan utilization per borrower (average loan amount multiplied by average number of loans) increased from $ 1,861 to $ 2,163. These data clearly demonstrate a high need and growing demand for unsecured personal consumer loans.
The credit quality of online installment loans continues to improve year over year. The incomes of installment borrowers are considerably higher than the one-time salary and have increased over the past five years. Overall, borrowers who use online channels for loans tend to be younger than in-store borrowers. Surprisingly, Gen X is the largest user group on the online channel, ahead of Millennials by 7%.
Take a closer look
If your loan portfolio could benefit from a higher yielding consumer loan pool, here are some things to consider:
- Look at more opportunities. Millions of Americans do not have the credit history to get a loan in the prime credit market. At-risk consumers are often seen as a single and uniform segment of the population, even though the circumstances, behaviors and intentions underlying their use of credit are very different. For every consumer, we need to consider what led to their bad credit rating. Is the consumer a young person without sufficient credit history to qualify properly for a traditional loan? An otherwise creditworthy consumer who has faced a destabilizing financial event such as job loss or an unexpected medical problem? Affordable consumer installment loans are essential for many of these consumers to help them manage their monthly expenses during times of financially destabilizing events and income volatility.
- Use alternative credit data to take a closer look. In the nearby premium and subprime market, consumer stability is directly linked to future loan performance. Frequent changes in a consumer’s cell phone number, bank account or home address are often associated with increased risk. In 2017, consumer stability remained constant, with little change in key attributes often associated with risk. Consider using alternative data, such as Clarity Services, part of Experian, to identify more eligible borrowers and more accurately assess risk. The use of alternative credit data provides a more holistic view of a consumer’s credit history, enabling a more informed credit decision.
- Take advantage of the online lending channel. In addition to using alternative credit data to qualify more borrowers, maximize member convenience and profitability of these loans through online lending channels. You don’t want to give up too much of the higher interest margin on expensive manual processes. As stated in the Alternative Financial Services Lending Trends Report 2018, the request and use of personal consumer credit is clearly done via the Internet.
Why is this important
For many of us, allocating an additional 5% or more of our loan portfolio to higher yielding consumer installment loans would have a measurable impact on net income, and is likely to increase the number of loans per loan. member through cross-selling. Credit unions can book these loans at higher rates (lower price sensitivity), which are still considerably lower than the rates of predatory providers. These loans can also significantly contribute to the health and diversity of your portfolio. With alternative financial credit data, you can ensure your terms are competitive while managing risk more effectively.
In their effort to ensure that nothing is overlooked, it makes sense for merchants and credit union lenders to consider other sources of credit data to find good borrowers who are going under the radar – first, before anyone else. . Market opportunities are ideal for credit unions to recoup some of the consumer loans that have been lost over the years to non-traditional lenders.