It’s no secret that auto loan yields are at low levels due to industry-wide low interest rates. According to the NCUA, the national average for a new vehicle loan with a 48-month term was 2.58%, as of December 2015. However, Forbes recently found a financial institution offering vehicle loans for 0.74%. While there has been some news on interest rates rising, the reality is that today’s competitive marketplace is clearly keeping rates in a low holding pattern.
The good news is that loan origination volumes are increasing in this low-interest-rate environment. The bad news, of course, is that financial institutions are experiencing low overall revenue yields. In the worst-case scenarios, financial institutions are wondering how they can continue to survive in this market.
However, many financial institutions have already discovered the key to keeping their revenue on track. They are diversifying their income stream with fee-based products. In fact, in a marketplace with ongoing large and small financial swings, the best long-term strategy is income diversification.
This philosophy relates to the old adage: Don’t put all of your eggs in one basket. With the right mix of interest-earning and fee-based products, financial institutions gain the benefits of both worlds.
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