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The Overlooked Benefits Of Residual Based Financing: Is Your Credit Union Educating Your Members On All Vehicle Financing Options?

Education not only fosters trust between the credit union and its members but also underpins the financial stability and success of its members.

Credit unions are renowned for their member-focused approach, providing a plethora of financial literacy tools and resources designed to empower their members. They offer lower loan rates, reduced fees, and a more personalized service experience.

Vehicle financing can be a complex and daunting process for many members. Lack of information can lead to decisions that adversely affect their financial wellbeing. As a financial adviser to its members, your credit union’s goal should be to demystify this process, presenting information in a digestible and accessible manner. Education in this domain not only fosters trust between the credit union and its members but also underpins the financial stability and success of its members.

However, amid most credit union’s extensive financial literacy campaigns, there’s a significant gap in education when it comes to residual based financing for vehicle purchases, an area that can profoundly impact a member’s financial wellbeing and decision-making process.

Understanding Residual Based Financing

Residual based financing, commonly referred to as leasing or balloon loan lending, is a financing option in which the borrower pays for the vehicle’s depreciation during the lease or loan term, plus interest and fees, rather than paying for the entire value of the vehicle. At the end of the lease term, the borrower can either purchase the vehicle for its residual value, return it, trade it, or lease or finance a new vehicle.

This financing model can offer lower monthly payments compared to traditional auto loans and is becoming an increasingly popular choice among consumers.

The Gap In Education

Despite its growing popularity, many credit union members are unaware of residual based financing or its potential benefits. This gap in education can lead credit union members to overlook a financing option that might better suit their financial situation and vehicle usage patterns.

For instance, members who prefer to drive newer models or who use their vehicles sparingly and wish to avoid the long-term commitment of a traditional auto loan might find residual based financing a more advantageous option.

Why Credit Unions Should Bridge The Gap

    • Member Empowerment: Providing comprehensive information about all available financing options, including residual based financing, empowers members to make informed decisions that align with their personal and financial circumstances.
    • Competitive Advantage: As the financial landscape evolves, credit unions must adapt to meet the changing needs and preferences of their members. By educating members about residual based financing, credit unions can position themselves as forward-thinking, comprehensive financial institutions.
    • Financial Wellness: Understanding all facets of vehicle financing can significantly impact a member’s financial health. Knowledge about residual based financing can lead to better financial decisions, potentially saving members money and reducing financial stress.

Moving Forward

To bridge this educational gap, credit unions can incorporate residual based financing into their financial literacy programs. Targeted workshops, detailed guides, and one-on-one counseling sessions ensure members receive a holistic view of their financing options. By doing so, credit unions will not only enhance members’ financial literacy but also reinforce a commitment to serving members’ best interests.

Although credit unions excel in many areas of member education, there’s room for improvement when it comes to informing members about residual based financing for vehicle purchases. Addressing this gap will not only provide members with a fuller understanding of their options but also strengthen credit unions’ role as comprehensive educators and advisors in the financial landscape.

Would you like to learn more about the benefits of residual based financing for both your credit union and your members? Auto Financial Group is hosting an educational webinar series on the topic starting Feb. 14, 2024.

Tim Kelly, president of Auto Financial Group, has more than 25 years of experience delivering solutions to financial institutions. Auto Financial Group (AFG) is a Houston-based company that provides an online, residual based, walk-away vehicle financing product called AFG Balloon Lending. It also offers vehicle leasing and vehicle remarketing to financial institutions across the United States. For more information about AFG, call toll free at 877-354-4234 or visit www.autofinancialgroup.com.

This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
February 5, 2024

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