Good Footing In a Rising Interest Rate Environment
Interest rates are another factor spurring banks to lose share to credit unions, dealers said.
“One thing I’ve noticed about credit unions over the years is they raise their rates slowly and they lower their rates slowly compared to banks and captives,” which tend to pass on interest rate hikes immediately, said Paul Ritchie, owner of Maryland-based Hagerstown Honda. Rather, credit unions lend money coming from their members’ savings accounts; “they don’t have to go out to the Federal Reserve and borrow money,” he added.
Where the economy is in the interest rate cycle can determine how competitive credit unions become, Ritchie said. With rising interest rates being one of the most commonly anticipated challenges of 2019, credit unions are likely to be well positioned to give consumers better rates than some of the bigger banks.
In a rising interest rate environment, where banks and captives are responding quickly to raises, credit unions are typically one or two months behind. “There are times when their rates are so much better than everyone else’s, that until they catch up, others just can’t compete,” Ritchie said.
Dealer principal Trace Beck is also seeing credit unions beat out other larger lenders that cannot compete rate-wise. Credit unions’ rates can be as low as 1.5% below the rates offered by other lenders, such as Huntington Bank, Chase Auto Finance, and Santander Consumer USA, said Beck of Pierre, S.D.-based Beck Motor Co. In fact, the dealership’s credit union business has increased 30% in the past year because sales managers have been directing customers to credit unions because of the better interest rates, Beck said.
