Top 8 Benefits of Indirect Lending
By: Web Finance Direct
Whether you’re an RV, auto, or boat dealer, a credit union or bank, or just need help to provide more loan options to your customers, indirect lending can help bolster your business in many ways. Over the past few years, this type of financing has picked up serious traction, bolstered by a growing demand for an easier way to make payments on purchases.
A partnership between lenders, dealers, and a trusted third party, indirect lending helps lenders grow their membership base by getting connected to qualified applicants through dealers. Dealers sell more of their products by offering consumers more flexible ways to finance their large purchases. So, what are some of the major advantages of indirect lending?
Table of Contents
FOR DEALERS
1. Indirect Lending Shrinks Overhead Costs
Indirect lending with an F&I services partner, like Web Finance Direct, lets dealerships keep their costs low while still offering the same services larger competitors can afford. By outsourcing full finance and insurance (or full F&I) services, auto and recreational dealers enjoy all the benefits of an in-house F&I department without the overhead associated with it.
Plus, your dealership can more readily offer backend products through an indirect lending partnership, including gap insurance and extended warranties, boosting your overall profit margins and per vehicle retailed (PVR). Dealers in the RV, powersport, and marine industries can also leverage correspondent lending through Web Finance Direct to further drive sales by giving their existing F&I teams a leg up.
2. You Can Provide Better Customer Service
Indirect lending takes the weight of offering loans off your team’s plate, letting you focus on what you do best: running your dealership.
Giving your customers the ability to finance their purchases without having to leave the dealership can reduce a lot of the stress associated with buying a car, boat, RV, or powersport vehicle. This can benefit your dealership in the long run as more positive experiences for your customer base could lead to positive reviews, repeat customers, and more business.
3. Indirect Lending Lets You Offer Better Rates
On the topic of being able to help more customers, working with an indirect financing partner can help you offer better rates that fit your customer’s unique needs. In some cases, indirect lending can be a better option than going directly to the bank or credit union for a loan, as applicants can connect with a large number of lenders, each with their interest rate and risk thresholds.
4. You Can Offer More Options to Customers with Poor Credit
While indirect lending companies can offer better lending rates, they can also give you more options when handling customers with poor or no credit. Because of the volume of lenders they work with, indirect financing partners like Web Finance Direct may work with lenders who offer subprime loan package. By matching each applicant to the right lender for their credit profile, whether it be subprime, near-prime, prime, or super-prime, dealerships can enjoy a seamless indirect lending process.
FOR BANKS/CREDIT UNIONS
5. Indirect Lending Streamlines Communication
The benefits of indirect lending for lenders start with simplified communication. A lender’s indirect lending partner acts as the facilitator, ensuring that the process is as smooth as possible. In many cases, the dealership and lenders do not have to have any direct communication, as the indirect financing partner can provide all the necessary paperwork and reporting.
6. Membership Scalability
While dealers enjoy the benefit of offering more loans to customers, credit unions and banks then have more opportunities to connect with dealerships and, more importantly, potential new members. Not only can you increase your loan volume, but following up with buyers who use loans through your credit union can evolve into new members and account holders who might seek further services.
FLEX, a software company that specializes in credit unions, brings up a good point about new member retention, however:
“Only 2% to 3% of indirect loan members open another account or take out another loan.”
Because of this, it is vital that your bank or credit union prioritizes a positive member experience, including investments into technologies that can streamline the process of paying for loans.
7. Indirect Lending Can Grow Your Loan Portfolio and Revenue
Indirect lending can give your credit union or bank more flexibility in what kinds of loans it offers. For instance, you might not have the staff or expertise to handle loans for RVs or manufactured homes. By partnering with a company that is well-versed in this niche, their knowledge becomes yours in addition to connections to dealers selling these products.
By diversifying your loan portfolio, not only does your credit union insulate itself from any market changes to a specific niche (i.e. if people start buying fewer cars when auto loans are a staple to your business), but you can take advantage of other changes in consumer spending trends such as a growing demand for boats. All the while, your financial institution is making connections with new dealerships who then bring you more business, allowing you to not only grow your portfolio but mitigate risk in the process.
8. Indirect Lending Supports Community Outreach
Finally, indirect lending can help support your credit union’s community outreach efforts. Take Triad Financial Services’ example:
“In an effort to expand community outreach, credit unions have successfully widened their range of products and services over the past few years. That is due to a combination of factors, including interest rates that continue to hover around low levels and technology advances that allow credit unions to compete with “traditional, for-profit banks” in terms of both product and service offerings. One essential factor is that increasing numbers of credit unions are realizing that community outreach programs deliver far-reaching benefits for all those involved. As an example, three credit unions that continue to enjoy the benefits of their community outreach efforts are Member 1st, Orion FCU, and Member One FCU. In addition to being actively involved in the community, these credit unions participate in different indirect lending programs. As a result, they’re able to meet the financial needs of a broader pool of members, while maximizing their lending market shares.“
Especially if your credit union is small with big dreams in supporting its community, an indirect lender can help propel those dreams — and your union with them.
Indirect lending with a partner like Web Finance Direct means no extra work but exposure to qualified dealers and applicants. It’s the way to future-proof your business. Contact our team to learn more about joining our network of highly-qualified dealers and lenders. You can also download our free indirect lending guide to gain deeper insight into the benefits of indirect lending for dealers and lenders alike.
FAQs for Indirect Lending
What is the difference between direct and indirect lending?
Compared to direct lending, where borrowers go directly to their bank or credit union for a loan, indirect lending involves a partnership between dealerships, lenders, and a third party, which connects the two to qualified applicants, making the process more efficient.
What is the advantage of indirect lending?
Indirect lending has many benefits for all parties, including higher profit margins for dealerships through backend offerings like gap insurance and extended warranties, access to more qualified borrowers for lenders, and streamlined communication between the two parties.
What is indirect lending in banking? Or for credit unions?
Indirect lending for car/RV/powersports dealerships is a process where a dealership or indirect lending partner acts as a middleman between a borrower and a lender, typically a bank or credit union.
Using an indirect lending partner like Web Finance Direct means that car, RV, and powersports dealerships can offer their customers financing options without having to manage the lending process themselves. The indirect lending partner works with banks and credit unions to provide financing for the dealership’s customers, allowing them to focus on sales and customer service while still offering financing options. Credit unions/banks would benefit from an indirect lending partner like Web Finance Direct because it allows them to increase their loan volume and expand their reach to qualified dealerships.
Overall, this indirect lending partnership can streamline the lending process and increase the number of qualified loan applicants for both the dealership and lender alike.