In today’s rapidly shifting auto lending landscape, credit unions are uniquely positioned to expand their market share—if they’re willing to evolve. With increasing car prices and increased competition in the pre-owned car lending space by the major banks, credit unions need to rethink their approach and lead with a more aggressive lending mindset to capture member loans at the dealership.
Opportunity doesn’t come without complexity. As loan terms stretch to 84–96 months and credit profiles evolve, credit unions must strike a careful balance between competitive positioning and prudent risk management. The good news? With the right strategies, credit unions can meet members where they are financially, while safeguarding long-term portfolio health.
The market is shifting—and credit unions need to be ready
As new car prices rise—driven by inflation, tariffs, and the loss of EV credits—more consumers are turning to pre-owned vehicles. This shift has boosted trade-in valuations but also intensified competition in the pre-owned car market, especially around rates and terms where credit unions traditionally stand out. Banks are forward-pricing loans, anticipating interest rate drops to stay competitive. To keep pace, credit unions must adjust their asset-liability management (ALM) strategies and pricing models.
Operational efficiency is also critical for continued growth. Credit unions should aim to automate more than 70% of system decisions, adopt AI for document processing and alternative scoring, ensure weekend loan officer availability with a flexible mindset, and clearly demonstrate fast funding capabilities to dealers.
One in three credit union members is actively considering a vehicle purchase. This presents a prime opportunity for credit unions to offer competitive rates, personalized service, and flexible terms—especially in the pre-owned car segment, where demand remains strong and credit unions have a proven advantage.
Extended loan terms: A double-edged sword
One of the most notable trends in auto lending is the rise of extended loan terms. According to Experian’s State of the Automotive Finance Market report, new car loan terms now average 69 months, and pre-owned car loans average 67 months. Terms can reach upwards of 96 months, all driven by rising vehicle prices and consumer demand for lower monthly payments. While these longer terms can help credit unions win business, they also introduce new risks.
Extended terms increase exposure to depreciation and default, particularly if the borrower’s financial situation changes. They also challenge traditional underwriting models, which may not fully account for the long tail of risk associated with longer loans.
Credit unions must approach this trend with caution. Offering extended terms can be a valuable tool—but only when paired with rigorous risk assessment, member education, and portfolio monitoring.
Evolving credit profiles: Understanding the new borrower
Today’s borrowers are not the same as they were five years ago. Credit profiles are evolving, shaped by pandemic-era deferrals, rising consumer debt, and shifting employment patterns. Many members now fall into “near-prime” categories, requiring more nuanced underwriting and member engagement.
Credit unions have an advantage here. The relationship-based model allows credit unions to look beyond the credit score and understand the full financial picture. By leveraging data analytics and AI-driven tools, credit unions can assess risk more accurately and offer tailored solutions that meet members’ needs without compromising portfolio integrity.
Other actionable strategies for credit union executives
To navigate this landscape successfully, credit union leaders should consider the following strategies:
- Recalibrate risk models: Update underwriting criteria to reflect extended loan terms and evolving credit profiles. Incorporate alternative data sources and predictive analytics to gain a more holistic view of borrower risk.
- Enhance member education: Longer loan terms and higher vehicle prices require more financial literacy. Equip members with tools and resources to understand the long-term implications of their borrowing decisions.
- Strengthen dealer relationships: Partner with dealer groups to ensure credit unions remain top-of-mind during the financing conversation. Refer to your indirect lending platform to streamline these partnerships and deliver fast, seamless approvals.
- Leverage technology to combat fraud: As fraud becomes more sophisticated, credit unions must invest in AI-powered fraud detection and prevention tools. Check out any integrations within your platforms that can help you stay ahead of emerging threats.
- Monitor portfolio performance in real time: Use real-time analytics to track loan performance, identify early warning signs, and adjust strategies proactively. This is especially critical when offering longer terms or serving near-prime borrowers.
Optimism rooted in purpose
The current environment presents a chance to deepen partnerships, evolve programs, and serve members with empathy and innovation.
Yes, the road ahead includes challenges. But, with the right tools, insights, and mindset, credit unions can capture greater market share while staying true to their mission. Let’s lean into this moment, evolve with purpose, and continue delivering exceptional value to the communities we serve.
