Developing Refinance Guidelines that Work

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by Julia Guardione
Updated on: May 23, 2019

As auto refinance has gained popularity in the last few years, lenders are realizing these portfolios perform 2 to 3 times better than a standard indirect program and are asking, how do we acquire more?

Reevaluating lending guidelines, relaxing credit minimums, and allowing for higher loan-to-value gives credit unions more opportunity to bring on new borrowers. Managing pre-determined performance metrics—delinquencies, charge-offs, and yield—is the key to ensuring that your program stays on track long term.

When taking on new borrowers, credit unions typically want to see two years of credit history and prefer borrowers who are in higher credit tiers. If a potential borrower has a solid payment history, exception to standard underwriting guidelines should be considered. When considering exceptions for capacity ratios like debt-to-income it’s important to note that you’re placing the borrower in a better financial position by refinancing their loan so the likelihood that the loan will perform well is high.

Flexibility with higher loan-to-value (LTV) ratios is an essential part of running an auto refinance program. Higher LTVs are common with refinanced auto loans as the borrower may have purchased the car at a higher interest rate, causing minimal dent in the principal loan balance. Higher LTV’s may also be a result of vehicles depreciating at a higher rate because borrowers have rolled in negative equity and back end products to their original purchase. Use this to your advantage. Those who owe more on their auto loans are less likely to pay off their loans early. These borrowers will stay on your books longer and make your program more profitable.

Additionally, many institutions have strict LTV ratios due to the fear of total loss. However, backend products such as GAP and Vehicle Service Contracts can actually help protect your institution from a loss. While the loan balance may be greater, your institution is now protected from a car that is a total loss, or a consumer who would normally stop paying due to unexpected car repairs.

With proper guidelines in place, lenders are in the position to scale their auto refinance program to maximum profitability. Developing these guidelines is an important step to creating a profitable program.

Auto Refinance Best Practices in Action

Credit unions looking to grow their auto refinance program and increase profitability should develop a realistic plan to implement these best practices. Partnering with rateGenius is a simple and effective way to ensure refinance program success.

RateGenius provides end-to-end auto refinance services for its nationwide lender network. The company offers a high-touch and efficient loan fulfillment process that provides lenders with complete and consistent document packages, as well as guaranteed title work. RateGenuis allows its lender network to maintain full control of their underwriting guidelines.

With its full service marketing service, RateGenius brings new members to its lenders, creating more opportunities to cross-sell. This service helps lenders increase share of wallet with current members by recapturing their auto loans, and promoting additional products, such as credit cards or mortgage offers.

To learn how you can develop an auto refinance program that adheres to industry best practices, contact or call 866-413-5976.

About rateGenius

RateGenius is a nationwide web-based vehicle refinance loan broker. With more than 150 competitive lenders, rateGenius can find customers the most competitive vehicle interest rate to refinance their loans on cars, trucks, SUVs and specialty vehicles, such as RVs and motorcycles. Visit to learn more.

About The Author

Julia Guardione

Julia Guardione is an auto refinance writer based in Austin, Texas. She is a graduate of Texas State University and a lover of all things outdoors.

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