The Rundown

• Members who use the financing tend to be loyal users.
• More options available at the end of term.
• Protections may be in place to protect credit unions from risk.

With a year-long track record of strong portfolio performance, used car loans continue to rev up a turbo boost for many credit unions.

So much so that some are seeking nontraditional methods to keep the lending momentum going. Among them, 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. 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.

The $356 million Security Credit Union in Flint, Mich., has been offering a residual-based financing program since late 2011, said Chad Merrihew, vice president of operations. Members who sign on are able 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.