‘Risk it for the Biscuit’ in Auto Lending
By Lisa Hochgraf
A-paper auto loans have a very thin margin. In contrast, you can make serious money on D- and E-paper auto loans, Brett Christensen told attendees of CUES School of Consumer Lending today in Boston.
To illustrate this idea, Christensen described two loans he recently saw in process in his work as owner of CU Lending Advice.
The first was a 30-month, A-paper loan–$20,000 for a Kia, with an interest rate of 1.3 percent. Total interest? $341.
The second was an 84-month, D-paper note–$45,000 for a new Mercedes with an interest rate of 18 percent. (Christensen said he told the CU’s lending team that he felt this was too high, but the member was not upset; she didn’t have other options.) Total interest? $34,000.
“You have to risk it for the biscuit,” Christensen quipped.
Very seriously, Christensen emphasized that higher-risk members are those with greatest need, have the fewest options and who CUs were formed to serve. So finding ways to make loans to higher-risk members can not only benefit the credit union’s bottom line, but also create loyalty among the underserved.
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