Tag: credit3d

For an industry that has grown accustomed to sustained year-over-year growth, recent trends are concerning. The automotive industry continued to make progress in the fourth quarter of 2016 as total automotive loan balances grew 8.6% over the previous year and exceeded $1 trillion. However, the positive trend is slowing and 2017 may be the first year since 2009 to see a market contraction. With interest rates on the rise and demand peaking, automotive lending will continue to become more competitive. Lenders can be successful in this environment, but must implement data-driven targeting strategies. Credit Unions Triumph Credit unions experienced the largest year-over-year growth in the fourth quarter of 2016, increasing 15% over the previous period. As lending faces increasing headwinds amid rising rates, credit unions can continue to play a greater role by offering members more competitive rates. For many consumers, a casual weekend trip to the auto mall turns into a big new purchase. Unfortunately, many get caught up in researching the vehicle and don’t think to shop for financing options until they’re in the F&I office. With approximately 25% share of total auto loan balances, credit unions have significant potential to recapture loans of existing members. Successful targeting starts with a review of your portfolio for opportunities with current members who have off-book loans that could be refinanced at a lower rate. After developing a strategy, many credit unions find success targeting these members with refinance offers. Helping members reduce monthly payments and interest expense provides an unexpected service that can deepen loyalty and engagement. But what criteria should you use to identify prospects? Target Receptive Consumers As originations continue to slow, marketing response rates will as well, leading to reduced marketing ROI. Maintaining performance is possible, but requires a proactive approach. Propensity models can help identify consumers who are more likely to respond, while estimated interest rates can provide insight on who is likely to benefit from refinance offers. Propensity models identify who is most likely to open a new trade. By focusing on these populations, you can cut a mail list in half or more while still focusing on the most viable prospects. It may be okay in a booming economy to send as many offers as possible, but as things slow down, getting more targeted can maintain campaign performance while saving resources for other projects. When it comes to recapture, consumers refinance to reduce their payment, interest rate, or both. Payments can often be reduced simply by ‘resetting’ the clock on a loan, or taking the remaining balance and resetting the term. Many consumers, however, will be aware of their current interest rate and only consider offers that reduce the rate as well. Estimated interest rates can provide valuable insight into a consumer’s current terms. By targeting those with high rates, you are more likely to make an offer that will be accepted. Successful targeting means getting the right message to the right consumers. Propensity models help identify “who” to target while estimated interest rates determine “what” to offer. Combining these two strategies will maximize results in even the most challenging markets. Lend Deeper with Trended Data Much of the growth in the auto market has been driven by relatively low-risk consumers, with more than 60% of outstanding balances rated prime and above. This means hypercompetition and great rates for the best consumers, while those in lower risk tiers are underserved. Many lenders are reluctant to compete for these consumers and avoid taking on additional risk for the portfolio. But trended data holds the key to finding consumers who are currently in a lower risk tier but carry significantly less risk than their current score suggests. In fact, historical data can provide much deeper insight on a consumer’s past use of credit. As an example, consider two consumers with the same risk score at a point in time. While they may be judged as carrying similar risk, trended data shows one has taken out two new trades in the past 6 months and has increasing utilization, while the other is consolidating and paying down balances. They may have the same risk score today, but what will the impact be on your future profitability? Most risk scores take a snapshot approach to gauging risk. While effective in general, it misses out on the nuance of consumers who are trending up or down based on recent behavior. Trended data attributes tell a deeper story and allow lenders to find underserved consumers who carry less risk than their current score suggests. Making timely offers to underserved consumers is a great way to grow your portfolio while managing risk. Uncertain Future The automotive industry has been a bright spot for the US economy for several years. It’s difficult to say what will happen in 2017, but there will likely be a continued slowing in originations. When markets get more competitive, data-driven targeting becomes even more important. Propensity models, estimated interest rates, and trended data should be part of every prescreen campaign. Those that integrate them now will likely shrug off any downturn and continue growing their portfolio by providing valuable and timely offers to their members.

Shifts in consumer payment behaviors are not always reflected in a credit score, so can trended data be the answer to providing a lender with insights on when to make line adjustments and prospect?

Trended data certainly seems to be the buzzword these days, but do lenders really understand what it is and how to use it?

Personal loans have been booming for the past couple of years with double-digit growth year-over-year. But the party can’t last forever, right? In a recent Experian webinar, experts noted they have seen originations leveling off. In fact, numbers indicate it’s gone from leveled off to a slight year-over-year decline. They projected the first quarter of calendar year 2017 may also be down, but then we’ll see a peak again in the second quarter, which is typical with the seasonality often associated with personal loans. The landscape is changing. A recent data pull revealed a 9-point shift in the average VantageScore® credit score for originations from Q3 to Q4 of 2016. Lenders are digging deeper in order to keep their loan volumes up, and it is definitely a more competitive marketplace. The days where lenders were once able to grow their personal loan business with little effort are gone. Kelley Motley, Experian’s director of analytics, noted some of the personal loan origination volume shifts may be due to the rebound in the housing market and increased housing values, enabling super-prime and prime consumers to now also consider home equity loans and lines of credit, in lieu of personal loans. Still, the personal loan market is healthy. Lenders just need to be smart about their marketing efforts and utilize data to improve their response rates, expand their risk criteria to identify consumers trending upward in the credit ranks, and then retain them as their cash-flow and financial situations evolve. In the presentation, experts revealed a few interesting stats: 67% of those that open a personal installment loan had a revolving trade with a balance >$0 5% of consumer that close a personal loan reopen another within a few months of the original loan closure 68% of consumers that re-open a new personal loan within a short timeframe of closing another personal loan do so with the same company Together, these stats illustrate that individuals are largely leveraging personal loans to consolidate debt or perhaps fund an expense like a vacation or an unexpected event. Once the consumer comes into cash, they’ll pay off the loan, but consider revisiting a personal loan again if their financial situation warrants it. The calendar year Q2 peak has been consistent since the Great Recession. For many consumers, after racking up holiday debt and end-of-year expenses, the bills start coming in during the first quarter. With the high APRs often attached to revolving cards, there is a sense of urgency to consolidate and lock in a more reasonable rate. Others utilize the personal loan to fund weddings, vacations and home improvement projects.  Kyle Matthies, a senior product manager for Experian, reminded participants that most people don’t need your product, so it’s essential to leverage data find those that do. Utilizing propensity score and attributes, as well as tools to dig into ability-to-pay metrics and offer alignment can really fine-tune both an organization’s marketing and retention strategies. To learn more about the current state of personal loans, access our free webinar How lenders can capitalize on the growth in personal loans.