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The rapidly evolving financial services landscape has many credit unions reimagining their approach to member services and portfolio growth, while still anchoring on their strategic advantage: The trust of their members. This trust has allowed them to maintain strong deposit bases in recent years. However, with traditional branch-based models losing relevance, the credit unions that adapt to consumer expectations for digital-first banking will be better positioned to continue generating deposits effectively and put those deposits to work in ways that fuel smart, meaningful growth.
Moreover, as the cost of living rises and credit card debt reaches historic highs, credit unions have a prime opportunity to provide meaningful solutions that ease consumers’ financial stress while strengthening their own portfolios. Many credit unions are actively seeking ways to expand their reach while supporting members’ financial well-being, guided by the core mission of “people helping people.”
Addressing the Debt Burden With Strategic Lending
The current economic environment reveals a stark reality: Today, American consumers hold over $17.5 trillion in total debt, according to the Federal Reserve Bank of New York, but it’s the composition of that debt that raises concerns. More than $1 trillion of this debt sits in credit cards, with average interest rates exceeding 20%, making it an expensive burden for many middle-market Americans. Compounding this issue, pricing differentiation has become more challenging for lenders, often leading consumers to pay more than necessary.
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Against this backdrop, many credit unions are turning to unsecured personal loans as a strategic solution. With current APRs averaging about 7.5% lower than credit cards, personal loans offer a compelling opportunity for consumers to consolidate and pay down debt more affordably. If widely adopted, this approach could save U.S. households over $80 billion annually – a significant impact on financial wellness. This context presents a critical opportunity for credit unions to provide tangible financial relief while simultaneously strengthening their market position and earning attractive risk adjusted returns.
A Win-Win for Credit Unions and Members
Beyond supporting members, personal loans also provide substantial benefits for credit unions. When structured effectively, these loans introduce high-quality assets that help diversify their portfolio – especially crucial given the industry’s historic overreliance on auto loans. Even though the average duration of a personal loan tends to be similar to that of an indirect auto loan, the former has a much more attractive risk adjusted return and more effectively diversifies the balance sheet. Plus, such an asset is much more likely to retain a member and lead to deeper, more meaningful relationships, especially when compared to an auto loan which, usually disintermediates the involved credit union entirely.
Key Considerations for Successful Implementation
Ultimately, personal loans have emerged as a powerful tool for both consumers and credit unions. However, executing this strategy is easier said than done, especially in light of the thin margins and limited resources many credit unions are already grappling with. That’s why many credit unions choose to partner on their personal lending strategy to take advantage of their partner’s scale, instead of building from the ground up.
When evaluating potential partners, credit unions should seek those with the financial acumen and sophisticated technology that can facilitate a seamless, digitally-optimized borrowing process, backed by a proven track record of efficient and responsible underwriting, rigorous risk management and mission-aligned lending practices. A digital-first approach that enables credit unions to appeal to younger generations and cast a wider member acquisition net beyond their geographical region.
By collaborating with the right partner, unsecured personal loans can provide members with clear paths to debt reduction while also enabling credit unions to strengthen their lending portfolios.
The Broader Impact
Credit unions today have a unique opportunity to deliver meaningful financial solutions that alleviate members’ financial stress while strengthening their member relationships and differentiating themselves in the market. The credit unions that implement this strategy effectively will be well positioned to optimize their balance sheets, better support members and thrive in today’s increasingly competitive financial services landscape.
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