Life is full of surprises- some good, some not so good. Unexpected life events such as a car accident or vehicle theft can result in costly repairs or the expense of replacing the car. The loss of income due to a job layoff, disability, or death can overwhelm a borrower and their loved ones. With nearly 57 million Americans with no emergency fund, it’s safe to say many people are financially unprepared for unforeseen expenses.
As credit unions look to increase auto lending through direct and indirect channels, there is also an opportunity to increase non-interest income and protect your loan portfolio while helping your members protect their vehicles and financial well-being. By offering additional vehicle and loan protection programs, borrowers (and lenders) can rest easy knowing their vehicles and loans are protected in the event of loss, no matter what form it may take.
How can I provide additional support and protection to borrowers?
There is an array of supplementary products that a lender can provide borrowers as they help them through the loan process.
In the event of an accident or theft resulting in a total loss, borrowers can end up with a loan balance that isn’t fully covered by an insurance payout. This can leave a borrower owing on a vehicle they no longer have as well as in need of a down payment for a replacement vehicle. While traditional Guaranteed Asset Protection (GAP) protection may pay off a borrower’s auto loan after an insurance payout, there are also new options that not only pay the deficiency balance but can also provide a depreciation reimbursement that can go toward the down payment of a new vehicle. This lessens the burden on the borrower to come up with additional funds out of pocket to get back on the road with a replacement vehicle- providing peace of mind and financial protection when needed most.
Vehicle breakdowns are an unfortunate part of life and can be incredibly costly. As vehicles continue to be built with more sophisticated interior and safety features like sensors and cameras, repairs are becoming more expensive. According to the U.S. Bureau of Labor Statistics, prices for motor vehicle repairs were 61.07% higher in 2017 than they were in 2000, and continue to rise year after year. An unexpected breakdown can cause huge issues to a borrower without an emergency fund. Adding Major Mechanical Protection Insurance (MMP) (also known as an extended warranty) to your product lineup is a beneficial way to assist borrowers with the cost of repairs, allowing them to enjoy their vehicle longer.
Often times an accident or car repairs seem like overwhelming experiences to navigate through. However, in the case of more serious life events such as disability or unexpected unemployment making payments on the loan can become exceedingly difficult, driving up the risk of default. In the case of death of the borrower, the last thing that a grieving family wants to deal with is managing a loan payment. In any of these situations, responsibility to make the payments can fall onto the family, who may also be trying to juggle medical bills, increased expenses, and final arrangements on decreased income. As auto loan terms continue to lengthen, the risk that a borrower could suffer a major life event while still paying back their loan also increases.
Payment Protection Program could help eliminate the risk of potential loan default and provide a safety net for your borrowers and/or their families. This type of program benefits borrowers and their families by assisting with payments or paying off the remainder of the loan (depending on the specific program) if payments can no longer be made after a covered incident.
You can strengthen your relationships with your member as well as protect your loan portfolio by adding products that support borrowers faced with a difficult situation. This will add a layer of security for the borrower while also protecting your institution from increased portfolio risk. Your credit union increases your non-interest income and protects your borrower from financial emergencies in the future.