​​​​​​​Essential Ideas for Starting an Indirect Lending Program 

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Jay Carstens, CCE Photo
SVP/Client Experience

5 minutes

Understand the market, choose well among the technology options and develop great relationships with dealers.

Sponsored by Origence

In 2023, new vehicle inventories are finally projected to begin returning to normal. Following a record-high average price for new vehicles, auto lending is set to have an interesting year, given the current environment in rates and economic pressures. For credit unions considering entering the indirect lending space, there are effective ways to launch your program and grow your loan portfolio.  

If your credit union is new to indirect lending, be aware that the market is well-populated with lenders that include captives, major banks and large finance companies. Competition is tight, but there are best practices your credit union can follow to ensure success.

In this article, we look closely at a few best practices for starting an indirect program, along with ideas that credit unions can use to maximize their success and match their members to the right financing.

Understand The Market

For credit unions, indirect lending is about developing dealer relationships—and being consistent with them. Find the dealers that are a good fit for your credit union and will appreciate working with credit unions that know their communities. 

Also, it’s important to decide which types of dealers you’ll target and where they are located. Whether your indirect program will include dealers across your state or within 10 miles of a branch, learn about their business and inventories. 

In addition to the big franchise lots, independent dealers may provide opportunities for credit unions looking to enter new indirect markets since some of the other players, like the captives, don’t take those loans. Credit unions can find untapped opportunities by adopting stringent standards and monitoring dealers. Plus, the barriers to entry are probably lower, as well. 

In today’s high-rate environment, credit unions are often positioned to offer competitive loan conditions versus other lenders. But even when the cycle changes, the key to success is not always simply offering the lowest rate or the highest payout. It is important to be both consistent and competitive. If you want to pay your dealer 1%, but other lenders are paying 3% to 4%, you’re going to be challenged just getting in the door.

Stay Ahead of The Digital Curve 

Consumer expectations are changing. Technology powers new conveniences and speed of decisions that borrowers want in their lending experience. It is essential for credit unions to incorporate technology that meets new consumer expectations in the digital marketplace. For many credit unions, this will make or break the launch of their indirect lending program. 

By partnering with a technology provider that delivers easy entry into the indirect lending market, credit unions can reduce the burden on their staff while gaining efficiencies. Here are a few important things to consider when deciding on the technology to drive your indirect lending efforts:

  • Complete control over underwriting guidelines for higher loan quality
  • A system that has digital loan processing for fast funding
  • Technology that simplifies the member experience and advances dealer relationships
  • A system that includes a decision engine for instant decisioning

When launching an indirect lending program, using technology to be efficient is one of the keys to success. Indirect lending is a high-volume product—so automated decisioning and quick funding can be extremely beneficial in setting your program up for success. Credit unions should also closely review their new member processing.

Start Your Program Strong

Entering the tough and competitive indirect lending market is a challenge. Even credit unions with a good understanding of their market and business will still need to be diligent in their efforts to gain dealers’ attention. 

Here are two best practices that can help you kick-start new dealer relationships: 

  1. Put your best foot forward with a promotion. It’s a great way to grab a dealer’s attention, especially in 2023’s high-rate lending environment. Consider ideas like a temporarily high dealer flat (fee), low rates in one or more credit tiers or no rate adds for extended terms. These promotions should be short-term, just a few months. They’re intended to make the dealers comfortable when sending you applications and contracts.
  2. Contact dealers in person. As businesses move more online, making an effort to meet someone face-to-face will stand out. With the growing emphasis on digital strategies and technology in the marketplace, the human element that only credit unions can bring to the table when building dealer relationships can be a key differentiator. It may seem a bit old-school in today’s tech-savvy world, but a handshake, eye contact, and a smile still go a long way to developing the personal connections that you will need to establish the relationship.

Make Your Rate Sheet Your Top Selling Tool 

When launching your program, be sure your guidelines and decisions that are sent out to dealers are very specific and easy to interpret. Dealers need to know if your credit union allows back-end products to be added or if they are included in the approval.

These strategies can position your credit union as an attractive option, so when you’re ready to launch a program, you’ll already have a pipeline.

Despite a very competitive marketplace, credit unions have one advantage over all other lenders: Dealers have found great value in working with local credit unions! 

Jay Carstens, CCE, is SVP/client experience for CUES Supplier member Origence. He has more than 27 years of indirect auto lending experience, with 14 of those years working for Origence. Carstens spent time with GE Capital, HSBC, and Triad Financial as an area manager developing the market for each of these lenders before joining Origence. During his time at Origence, he has helped credit unions improve operating and cost efficiencies with their lending channels and boost loan volume. He started his career with CU Direct in Nebraska. Origence provides credit unions an important marketplace edge when launching—and growing—an indirect lending program, from CUDL, the nation’s largest credit union indirect lending network, to AutoSMART, the online auto marketplace that drives more loan opportunities and a digital car-buying experience for your members. Learn more by booking a demo today.

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