You never hear people complain about getting a car loan, even though more than one-third of Americans have one.
Why? Because it’s all about the cool new car, not the loan.
Still, the process is clunky.
Today people car shop online but often still buy and finance with dealers. Financing happens at the dealer because there’s a gap between online shopping and actually driving off the dealer lot.
But finally, banks and credit unions have a massive opportunity to fill this gap between a customer shopping online and getting their new car keys.
How? By blending shopping and financing experiences so customers associate you with the cool part of their car-buying journey.
Let’s explore how to gear up.
State of auto loans in the U.S.
First, let’s get a handle on how big the auto loan opportunity is in the U.S.
Almost 115 million Americans have an auto loan as of Q3 2019, according to the Federal Reserve Bank of New York.
Per the New York Fed, the total outstanding balance of these auto loans is $1.32 trillion, and $159 billion in new auto loans and leases were originated in Q3 2019.
For context, this is a larger market than credit card debt ($881billion outstanding in Q3 2019) and trails just behind student debt ($1.498 trillion outstanding in Q3 2019).
What about risk after a long expansion?
As the cycle has matured since 2012, the percentage of outstanding auto debt that became 90+ days late has risen 71 basis points but isn’t quite alarming at 2.34%. And car loans are only 9.46% of total consumer debt outstanding.
Also, a majority of auto borrowers have decent to strong credit. Almost half (48.77%) of the $159 billion auto loans added in Q3 2019 were made to borrowers with credit scores of 720 or higher, and another third (32.31%) of Q3 auto loans went to borrowers with 620-719 credit scores.
The larger point remains the same: You have massive customer service and market share opportunities in auto lending.
What would it look like if you prioritized auto loans in your customers’ lifelong journeys?
Auto loans can start your customer’s financial road trip
To answer, let’s look at the customer journey.
The next most common product on a customer’s roadmap is an auto loan: 45% of 18–35-year-olds get an auto loan from their bank or credit union.
This is an encouraging stat, but how is your customer experience on car loans? Do they have to visit a branch or complete an application providing data you already have?
If an existing deposit customer requests an auto loan, you can invite them to a partially pre-filled application that puts them on the fast track to loan approval.
If an auto loan is a customer’s first product with you, they can instantly connect their bank and employer data to complete an application which enables your real-time approval.
In either case, the customer can manage the application and loan approval conditions from any device, and your team can co-pilot with the customer whenever needed.
Make it all about your customer’s cool new car
That’s how you approve the borrower part of the loan.
What about approving the car? And where does the customer car shopping fit in?
This is where you tap into customer emotion and keep their focus on the cool new car.
While applying, your customer can enter a license plate or VIN which gives you make, model, year, and reliable valuation. You can complete conditional approval with the actual car your customer wants. Your customer sees your exact terms for that car and can envision themselves behind the wheel.
In this example, your customer is pre-approved by you for the car they want. This means you’ve filled that gap between online car shopping and the customer actually buying.
They can buy directly from the online source using your financing. Or they could go find their dream model at a dealer knowing they’re ready to drive off thanks to your financing.
Either way, you’re powering their journey and keeping that wonderful emotional connection with your customer.
That is what modern customer experience is all about.
Marketing upgrade for auto loans
This drastically-improved experience isn’t some distant vision we get when cars fly. It exists today, and early-adopting auto lenders have seen application rates increase three times and loan approval rates rise 10%.
Think of the marketing possibilities here.
You’re no longer relegated to reminding people you do auto loans. Instead, your marketing can show how you power their car shopping and buying. You’ll get to them before a dealer or other financing options.
And it also draws them into your full product offerings.
They’ll remember their car experience when you engage on new life milestones. Then you can confidently market similar experiences like home loans approved in one tap or savings accounts opened in minutes.
This is how it plays out when you start to rethink auto loans in your customers’ lifelong journeys.
Julian Hebron is the Founder of The Basis Point. His views are his alone and do not necessarily represent the views of Blend.