Credit Unions Cater to Young People in Need of a Car Loan

Credit unions are a popular source auto loan for a number of reasons, not least of which is their openness to higher risk borrowers such as younger people with little or no lending track record. Many of the nation’s credit unions will go out of their way to accommodate Millennials because of their potential as future members and borrowers.

By offering young borrowers the opportunity to buy an auto when few other legitimate lenders would approve their loan, credit unions believe they open the door for appreciative students and young professionals to be future members with checking and savings accounts, additional auto and other loans, and as investors in certificates of deposits and other investment vehicles.

On the Right Track

Credit unions that cater to younger car buyers are definitely on the right road. According to an Inc. article by Millennial generation expert Ryan Jenkins, 52 percent of 18-33-year-olds say they plan to purchase an auto. Like most people, they like to travel in their own vehicle, if possible, but they’re not in any hurry.

“It’s important that dealers, automakers and marketers understand who the next generation car buyers are since Millennials are positioned to become the dominant car buying group,” says Jenkins. He also points out that Millennials are attracted to financial institutions they can trust, an attribute that credit unions have historically had over large banks.

We talked to two credit unions about their young borrower programs for auto loans. In many ways, their programs are similar and both report good success. “Our experience with these younger borrowers is that they make their payments on time and the performance of these loans is slightly better than our auto lending portfolio as a whole,” said Norm Phillips, Centralized Lending Manager at SELCO Community Credit Union of Eugene, Oregon.

Employed Students, Recent Graduates Are Prime Candidates

Both credit unions specifically target high school or recent high school graduates who are 18 or older who can document they have some form of minimum income, but have simply had no need to borrow money. But upon graduation, they may be in the market for their own car, usually a used vehicle, because they have a new full-time job that requires a commute, or they are attending a college in the next city or state. The other credit union we interviewed has a similar first-time auto buyer program coupled with a marketing campaign to attract Gen Y borrowers.

“We recognize the growth potential of Millennial consumers in our market area is off the charts but these consumers also require a more targeted promotional outreach that will resonate with them and their lifestyle,” said David Kelsay, SVP of Lending at Sierra Central Credit Union of Yuba City, California.

A Final Thought

There is a natural affinity between Millennials and credit unions, explains Glenn Christensen, CEO of the Advisory Group, in the CU Insight online newsletter. “Millennials, that tenacious generation born during the late 80s and through the 2000s, are the driving force behind a significant upsurge in credit union growth,” he writes.

He points out that according to a study conducted by the TransUnion, the percentage of Millennials using credit unions has experienced a meteoric rise, growing from 20 percent in 2013 up to 25 percent in the first quarter of 2016.

Why is this happening? he asks. “After considering the Millennial mindset, the gravitation to credit unions seems obvious,” he says. “One of the most defined characteristics of the Millennial generation is an increase in a general sense of duty or civic-mindedness. For distrustful customers, growing up during the banking crises of the early 2000s, the community-driven, community-controlled core of the credit union business model is a breath of fresh air in the search for a big banking alternative to auto loans, mortgages and credit cards.”

Amen to that.