How to Build a Loan Program that Appeals to Generations A-Z
Produced by Traci Mottweiler, Director of Growth Strategies
In conversations I’ve had with lending institutions on the topic of “lending to Millennials & Gen Z,” it’s become clear to me that a pretty important question still weighs heavily on the minds of these institutions:
'How can we build loan programs that attract these newer demographics while not ignoring or rejecting the needs of our current demographics, namely baby boomers?'
Well, I’m here to address that very question!
1. Offer Attractive Lending Options for Millennials & Baby Boomers
Attracting Millennials without losing baby boomers is definitely doable, but you first have to understand the over-arching characteristics that differ between these markets – or even contradict one another:
Baby Boomers (currently make up the large majority of financial institutions’ consumers):
- Rate-centric: They are more focused on loan rates than term lengths/flexibility
- Satisfied with more traditional loans, as long as they can keep their lower monthly rates
- Includes many prime and super-prime borrowers
Millennials (soon to become the largest consumer base for financial institutions):
- Payment-focused and term- centric: Not fans of long-term commitment, unlike baby boomers
- Looking for non-traditional loans that allow for shorter/flexible term commitments and affordable/flexible payments
- Largely made up of non-prime borrowers, many of whom have negative equity resulting from student loans and/or credit card debti
Baby boomers are (arguably) easier to please, since traditional auto and mortgage loans are likely to meet their loan term and repayment qualifications, as long as they can keep their lower monthly rates.
But you need to think a little more outside of the box when it comes to building attractive loan offerings for younger borrowers, since they want short-term commitments and affordable, flexible payments, while often having little-to-no credit built.
So how can you safely offer loans to the younger payment-centric, term-focused demographics?
1. Adjust the terms and conditions of your loan products to offer more flexible repayment options:
- Auto loans: short term loans, or open-ended terms with shorter payment schedules
- Mortgages: ARMs, rather than longer-term fixed rate loans
- Residual based financing: these lower payments by as much as 30-40%, and offer shorter term lengths
- Offer different means to remit payments – i.e. weekly, bi-weekly, or flex schedules
2. Offer educational programs, like first time home buyer courses:
- Build trust with younger consumers who are keen on self-serve education
- Bring people into your physical branches, to build relationships and generate more sales opportunities
- Reduce loan risk by helping borrowers to make more informed loan purchases
3. Expand your lending channels beyond traditional auto loans
- Student lending
- Refinancing programs
- Special mortgage programs for first-time home buyers
- Small business loans for these emerging, entrepreneurial demographics
- Marketplace and crowd sourcing programs
By diversifying your loan programs to include these recommended additions, you allow yourself to attract emerging consumer demographics, while not tampering with your loan offerings for your older, more active demographics.
2. Deliver the ‘Amazon Treatment’ to All Consumers
While the lending needs of these consumer demographics differ, these groups – and all other consumer demographics – want the same thing: To receive the ‘Amazon treatment’ when interacting with businesses, including – nay, especially! – their financial institutions. This treatment involves:
- Easy, frictionless transactions, servicing and interactions
- Consistent, omni-channel experiences
- 24/7, on-demand access
- Proactive and reactive education
In other words, whether it be by phone, in person, or on a mobile device, consumers of all ages want a consistent customer experience that is easy, accessible, and relevant to their needs; in a word: pleasing.
There are a lot of companies out there competing for your loan business, so the more you can expand your lending channels to cater to new borrowers and the more pleasing you can make the lending process for all consumers – from loan fulfillment and servicing to customer service interactions – the better chance you’ll have of delivering real value, building trust, and winning sales across all consumer demographics.
Want to learn more about building a competitive loan program?
Register for the upcoming webinar "Elevate Your Auto Lending Horizons with Competitive Attributes & Pricing"
Read the blog "Four Ways 'Big Data' Can Enhance Your Lending Program"
Download the white paper "How to Step Away from Traditional Lending"
Contact us to learn how we can help you expand your lending program.
i “Balancing the Risk versus Rewards of Financing to Millennials.” Auto Remarketing, 14 Nov. 2017, www.autoremarketing.com/subprime/balancing-risk-versus-rewards-financing-millennials.
Content in the blog posts are the opinion and views of the writer, and don't necessarily reflect the opinions or views of Allied Solutions.