HOBOKEN, N.J. -

According to an article written by Credit Union Times’ Michelle Samaad, credit unions seem to be benefiting from used-car loans’ recent strong portfolio performance.

And Samaad even went on to write that some credit unions are seeking “nontraditional” methods to keep the lending surge going and returning to residual financing methods as the economy continues to recover.

“Among them (nontraditional methods), leases and balloon loans, which advocates say can bring in higher yields than  traditional financing and potentially offer more savings for members on their monthly payments,” Samaad reported. “Typically referred to as residual financing, the program requires less of a down payment, shorter loan terms and more options at the end of the term.”

And within the article, officials stated that as dealers are taking advantage of these options, some are sending numerous customers to the credit unions, potentially providing shoppers with easier, more flexible financing options.

As this trend continues, Samaad reports that “the competitors that most credit unions face in the vehicle lending space may have to rethink their financing strategies.”

Backing this assertion up, the publication noted that since February 2011, used-vehicle loans have been among the biggest contributors to the industry’s overall lending numbers, according to the April edition of CUNA Mutual Group’s “Credit Union Trends Report,” which tracked data through February.

This trend also marks a shift from loan terms that were stretched out over five years and up in an effort to make vehicles more affordable during the recession. 

The Credit Union Times then went on to highlight examples of this shift towards residual financing within the segment.

First, the publication noted the $356 million Security Credit Union in Flint, Mich., has been offering a residual-based financing program since late 2011, according to Chad Merrihew, vice president of operations.

In setting up this program, Security CU partnered with Auto Financial Group — a Houston firm that provides residual-based finance products for credit unions.

This program enables members to “get a low payment, flexible terms actual ownership of the vehicle and several end-of-term options, including the lease-like option of being able to surrender the vehicle and walk away in lieu of making the final loan payment,” the article stated.

So what exactly do programs like this mean for dealers and their customers?

Merrihew was reported saying the leasing and balloon payment activity is a 50-50 split between new and used vehicles. By offering a lease-like loan, members have been able to get cars they normally wouldn’t be able to afford through an average savings of 30 percent to 40 percent on their monthly payments, he went on to say.

Moving along, Credit Union Times also cited that the $898 million Corning Credit Union — which has also partnered with AFG  — has employed the methods of lease or balloon payments, as well, and are reaping rewards as customers that utilize these financing options are tending to stick to them.

David Walker, vice president of lending at Corning Credit Union, was reported saying that members who have opted for a lease or a balloon payment have been a "pretty loyal group to residual financing."

“We found that members who are used to leasing or balloons keep coming back to them,” Walker was reported sharing.

Walker also told Credit Union Times that tn the last quarter, 10 percent of Corning’s volume has come through residual financing for auto loans, also noting that “the three to four year terms have been much more attractive to members than the 84 or 96 months that some competitors have been offering.”

Interestingly, Walker was also reported saying that educating and contacting local dealerships about residual financing has helped the credit union’s “growth.”

“Members have several options at the end of the term,” Walker was quoted as saying. “They can sell it out right and get more than the residual value or turn it back in to AFG and they resell it. Most of the vehicles turned in are being sold or traded.”

To view the whole Credit Union Times article, see here.