Unlocking Success in Indirect Lending

As credit unions seek innovative ways to expand their loan portfolios and better serve members, indirect lending has emerged as a key growth avenue. However, navigating the complexities of dealer relationships, risk management, and operational efficiency can be daunting. When executed strategically, an indirect lending program can drive loan volume, boost interest income, and enhance member engagement.

Here’s how to approach indirect lending with a modern, results-driven strategy.

Prioritize Speed and Efficiency to Strengthen Dealer Partnerships

In today’s fast-moving environment, speed is a crucial factor. Dealers prefer lenders that can process and fund loans quickly—often within 24 to 48 hours of approval. If your credit union lacks the resources to meet these expectations, partnering with a third-party service provider specializing in efficient funding solutions can be a game-changer. KLA offers seamless automation tools that accelerate loan processing, ensuring fast approvals and funding, making your credit union a preferred choice for dealers.

Implement Robust Risk Management Strategies

While indirect lending presents growth opportunities, it also comes with inherent risks. Effective risk management starts with well-defined underwriting guidelines and strong dealer agreements that mitigate fraud risks. Regularly monitoring delinquencies and leveraging data analytics can help identify potential issues early. A diversified portfolio that balances loan types, credit tiers, and vehicle models can also help manage risk exposure. KLA provides credit unions with advanced risk management tools, fraud prevention strategies, and loan performance monitoring to maintain a healthy loan portfolio.

Maintain Transparency on Dealer Fees and Financial Recourse

Clear and upfront communication regarding dealer fees is essential in indirect lending. These fees vary based on loan amount, term length, and dealer relationships. Implementing a chargeback period ensures that your credit union can recover fees in cases of early loan payoffs or defaults. KLA helps credit unions develop structured and transparent fee models, ensuring financial recourse measures are in place and enforceable.

Optimize Loan Pricing for Long-Term Profitability

A well-crafted pricing strategy is critical to sustaining a profitable indirect lending program. Your pricing model should account for dealer fees, origination costs, servicing expenses, and charge-off risk while remaining competitive in the marketplace. Continuously evaluating and adjusting your pricing structure ensures ongoing profitability. KLA lending experts assist credit unions in creating dynamic pricing models that reflect both market trends and internal cost structures, providing ongoing support to maintain financial viability.

Leverage Technology for Efficiency and Member Engagement

Technology plays a pivotal role in modern indirect lending. Automated underwriting, e-signatures, and advanced loan origination systems streamline operations, reducing errors and improving response times. Offering digital loan applications and approval tools enhances the member experience while improving operational efficiency. KLA equips credit unions with cutting-edge technology, including seamless dealer platform integration, automated underwriting, and digital application capabilities to enhance lending efficiency and engagement.

Elevate Your Indirect Lending Program with KLA

Ready to take your indirect auto lending program to the next level? Partner with KLA to gain the competitive edge needed to strengthen dealer relationships, streamline lending operations, and grow your loan portfolio. Contact Bob Brant at RBrant@kla.us.com to schedule a consultation and explore how we can help drive your credit union’s success forward.