There’s a famous Kenny Rogers song lyric, “You gotta’ know when to hold ‘em. Know when to fold ‘em. Know when to walk away. Know when to run.” For potential car buying members, finding a new or used vehicle can put them in an awkward position. They want their dream car or that upgrade for a work vehicle. They might also be growing their family and need all that extra room. Or, they’re on a tight budget and struggling to put their kids through college. However, as a credit union, you know that hard credit checks can negatively impact their score.
Soft credit checks, on the other hand, can give them leverage. Soft inquiries are sweet spots because car buyers can visit multiple dealerships, negotiate terms, pass ‘Go’, collect $200 and travel around the Monopoly board (you get the idea). Hence, there is a bit of psychology behind soft credit checks which makes them valuable tools for your members.
Auto Loans: Why Hard Credit Checks and Soft Credit Checks are Like Playing Poker, But Shouldn’t be Played at the Dealership
A soft inquiry is similar to a basic background check. It lets you assess a member’s financial risks and does not affect their credit score. It’s best to do this using your Loan Origination System with your member prior to going to the dealership.
Soft Versus Hard Inquiries
Soft inquiries are beneficial for several reasons. Maybe the member isn’t good at managing their finances. Perhaps they’re not sure if they can afford a particular vehicle due to reduced cash flow during the pandemic. Soft credit checks let them know if they’re pre-approved before laying all their cards on the table.
Soft inquiries can build member confidence and trust so they can make a sound decision. Car buying members are not locked in with a hard inquiry and can continue to shop and explore different price ranges. Soft inquiries are also helpful for desperate car buyers. Maybe they know their credit is poor, but their old vehicle has broken down. A hard inquiry at the wrong time can damage their credit. If your credit union offers a mobile loan application from your credit union mobile banking app, they can be approved with a direct loan for the right car at the dealership avoiding the sales pressure and the hard credit check.
Hard inquiries examine credit and can negatively affect credit scores. They will show up on a potential member’s report and typically stay there for about 2-years. Hence, if they’re shopping at multiple dealerships trying to negotiate terms, several hard inquiries are bad for them. And, that’s where you come in as the hero.
The Shopping and Research Phase in the Member’s Car Buying Journey
About 61% of car shopping is done online, but only 20% at actual dealerships. Research is the initial stage in the car-buying journey. However, when buyers shop on multiple sites, only 32% finished with dealership sites, 65% went to third-party sites and 27% to OEM sites.
Your car buying members are interested in different makes and models and will often get online to comparison shop and view prices. By the time they visit a dealership, they’ve likely picked out some vehicles and are ready for test drives. This is before the negotiating and finance phase, when your members are working with salespeople to view their credit, discuss financing, interest rates, down payments and terms, and it creates a window of opportunity for your credit union.
Mobile device usage to research vehicles increased by 52% from 2018 to 2019. Influencing car buyers early through multi-channels (online, in-person) gives your credit union a strong presence with them. Remember, they’re looking at multiple dealerships and third-party sites (Auto Trader, Cars.com, Kelley Blue Book). With strong marketing efforts online, you can use your digital and mobile channels to promote your credit union’s soft credit check feature and help your members avoid a hard credit pull.
Typical buyer steps include researching prices, finding vehicles for sale, comparing models, checking a car’s actual price and locating local dealerships. Hence, when members know you offer soft inquiries, they can shop confidently knowing that they did their preliminary auto loan homework with your credit union. The member will have a better shopping experience without feeling obligated or like they’ve negatively impacted their score.
Loan Origination Software – A Blueprint to Guide Your Member
Letting your members know you offer soft credit check inquiries early in their journey is important. It can ease nervous anxieties and build trust. To achieve this, work with your marketers to ensure your app and site are mobile-friendly and responsive. Providing members with the best online experience is helpful as members expect a fully immersive experience online. That’s why your software choice matters to allow your members access to a loan on their smartphone, from you even while at the dealership.
Loan Origination Platform software can help your credit union deliver a consistent message with the members and word of mouth endorsements. Viewing your member’s data quickly and conveniently through soft inquiries lets you assist them in their buyer’s journey. You can then help them find an affordable vehicle and move them into the financing phase. Soft inquiries are a win for members giving them leverage at the dealership. They won’t feel like they’re sitting at the table bluffing, they can simply go all in with the loan from their credit union!