How to Get Started in Lifestyle Lending
Programs help CUs grow their loan portfolios and attract new members and business accounts.
Looking to attract new members, promote local business development, and expand your loan portfolio? Consider lifestyle lending.
A type of indirect lending, lifestyle loans support retailers, medical providers, and businesses in your community by providing financing to their patients and customers.
These loans might cover the cost of dental work, surgery (including bariatric, cosmetic, and eye), adoption services or infertility treatments, remodeling projects, large household purchases (such as water treatment systems, heating and air conditioning, or spas); funeral expenses, jewelry, and musical instruments.
For the provider, lifestyle loans remove the risks associated with payment plans that may have been financed by the business itself in the past. In lifestyle lending, the credit union pays the practice or retailer upfront once an applicant is approved.
The providers pay a flat, monthly fee for the service.
“We have great relationships with our providers,” says Tara Gilmore, indirect lending manager at $5.1 billion asset America First Credit Union, Ogden, Utah. “In addition to participating in our lifestyle lending program, many have their business accounts with us, too.”
For credit unions, lifestyle lending offers an opportunity to grow their lending portfolios and to attract new individual members as well as business accounts.
These are members credit unions want to have: The average credit score of applicants who are approved for lifestyle loans is 718.
“Over the four and half years we’ve been offering lifestyle lending, the majority of the loans generated through the program have been for new members,” says Pat Simmons, Mountain America’s lifestyle lending manager. “We’ve also had very good results selling additional services to these individuals—checking accounts, credit cards, and savings products. Lifestyle lending has surpassed our wildest dreams in helping us to grow our membership.”
For consumers, lifestyle loan rates are lower (13.27% on average) and the terms are easier to understand compared to other private financing options.
Begin with due diligence
How to get started? As always, begin with research and due diligence. You’ll need to find a good lifestyle lending program—one that’s easy to understand, can be integrated into your current lending platform, has a track record of success, and will offer ongoing support.
You may want to talk to credit unions that currently offer lifestyle lending to get their recommendations.
Internally, you’ll want to make certain you support the program within your credit union. You don’t want it to become the “orphan child” of a larger indirect lending department.
It usually works best to designate one or two key people to manage the lifestyle lending program to ensure that your providers and applicants have one knowledgeable point of contact when they have questions.
Like every other aspect of your credit union business, great, personalized service will be key to your success.
Build a network of providers
Next, reach out to local businesses to introduce them to the program and establish a core network of providers. The lifestyle lending program you work with can be an important resource and help you find possible providers.
In some credit unions, every new business account is forwarded to the lifestyle lending department as a potential provider.
Once businesses are ready to offer lifestyle lending, encourage them to promote the program by including a simple phrase such as “Financing available” on their websites and in their marketing materials and advertising.
The lifestyle lending program will supply each provider with lending brochures and application information for customers and patients. Providers also can set up an online portal so applicants can apply online 24/7 from home or work.
Finally, set your expectations high. More than 90% of lifestyle lending applicants are new to participating credit unions.
The average lifestyle loan amount funded is $4,255, the default rate is low—less than 1%—and portfolios can surpass $16 million.