It’s an almost comical stereotypical battle, the aggressive financial institution marketer who only cares about response rate versus the conservative credit manager only wanting to target top quality loans. This can lead to the assumption that the marketer doesn’t care whether the loans fund, but only that they generate applications.
Clearly a marketer has to support the financial institution’s loan goals, and applications don’t accomplish that, only funded loans do. So if both the marketer and lending managers have the same goal, why are their approaches so different? Yes, underwriters understandably tend to be more risk adverse and thus are comforted by the highest quality loan applications, but there’s a more important reason marketers try to loosen the requirements — premium credit consumers tend to be unresponsive and relying on them to do so only hurts the financial institution’s chance of meeting its loan goals.
Recently I saw an offer from a local financial institution — “Receive $500 – $1200 (1% back) when refinancing an auto loan.” That means that particular offer was valid for auto loan amounts from $50K – $120,000. Almost weekly, I’m involved in creating auto refinancing campaigns for clients and I can count on one hand the number of consumers who refinanced based on these types of offers whose current auto balance was greater than $40K regardless of how much the financial institution could save them. The reality is simple — if consumers cared enough about their monthly payment to refinance to save, they wouldn’t have purchased and financed a vehicle that costly in the first place. I can picture the lending team telling marketing that they should target larger loans, but marketers know those consumers aren’t responders, and you can’t fund loans that haven’t been applied for.
So let’s give the marketers a little extra credit. When they suggest targeting less than premium credit, they aren’t trying to inflate meaningless response rates. They truly understand what’s needed to drive total new loan volume at a solid margin.