Clearing the air: Are protection products a powerful auto strategy?

Navigating vehicle purchasing decisions can be overwhelming, especially when it comes to auto financing. Credit unions aim to provide guidance and support in understanding the value of protection products like Guaranteed Asset Protection (GAP) and Major Mechanical Protection (MMP). However, misconceptions about these products often create barriers that prevent your members from opting for coverage that can offer them significant long-term benefits. Addressing common misunderstandings and emphasizing the role of these products in a successful auto strategy can benefit any of your loan portfolios.

Sharpen your auto loan approach

Credit unions can confidently move forward, particularly in the area of lending, by utilizing protection products like GAP and MMP. These offerings enable you to protect your members and yourself, serving as essential components of an auto financing strategy rather than simple loan add-ons. Here’s why:

• Mitigating financial risk

You have the opportunity to assist your members and reduce their risk of loan defaults. Implementing additional measures to protect their finances and being mindful of potential challenges, such as total vehicle loss or major mechanical failures, can reduce the likelihood of them walking away from a vehicle or requiring the credit union to use extra collection resources.

• Enhancing borrower satisfaction

Offering protection for a member’s vehicle investment can help build trust and enhance their relationships. When they feel secure, they are more likely to maintain their loyalty to their credit union for future needs and stay on track with their payments.

• Increasing revenue

Protection products provide your credit union with an additional revenue stream. The profits from selling GAP and MMP can help improve your margins while delivering value-added services to your members.

Confidence in auto ownership

Credit unions can actively empower their members by taking the initiative to educate them about auto protection products. Explaining in clear and relatable terms what GAP and MMP are can address concerns, dispel misconceptions, and provide evidence of how these products could potentially save money.

Each member’s financial situation is undoubtedly unique, so tailoring the approach is important when highlighting how these products can align with personal circumstances. By using examples and sharing data that supports the product’s benefits, members can be confident knowing they have a fully protected payment.

Overcome misconceptions and myths

Many members mistakenly view these products as unnecessary expenses, not realizing the significant value they provide in the event of a vehicle loss or major mechanical breakdown. This creates misconceptions and myths that are sometimes challenging, especially if the member already has a set payment in mind. Overcoming the perception that these protection products are “simply upsells” allows members to see them as strategic tools that provide peace of mind.

By addressing these objections, your credit union has the opportunity to present the benefits of GAP and MMP clearly, and your members can make a more informed decision. Some common misconceptions are:

• GAP coverage only benefits high-risk members

There are different perspectives on GAP. Some may believe it mainly benefits individuals with high-risk auto loans or those who are considerably upside down in their loan. However, in reality, as soon as a new car is driven off the lot, its value begins to depreciate, often at a faster rate than the loan balance. GAP may cover the difference between what a borrower still owes on the vehicle and what their insurance will pay out in the event of a total loss, offering peace of mind for members in various financial situations.

• MMP is an overpriced and redundant warranty

Many members mistake MMP for the manufacturer’s warranty and may think it’s unnecessary. However, it can actually extend coverage beyond the manufacturer’s warranty and often includes protection for major repairs on vehicle components that fail after standard warranties expire. The cost of this protection product spreads out over the loan term and offers a more affordable solution that can be used if members find themselves under financial strain.

• The claim process is too complex

Another common misconception is that these products come with complicated claims processes. In truth, many providers have simplified their claims procedures, offering a streamlined service to assist members with fast and easy coverage or reimbursement.

Powerful products, powerful strategies

Credit unions should incorporate protection products like GAP and MMP into their auto lending strategy. This will effectively mitigate financial risk and ensure your members understand the importance of protecting their vehicles throughout their auto journey. When both parties fully recognize the significance of auto protection products, they can better understand that these are not just another product—they’re about providing complete financial protection.

See how SWBC can help you strengthen your auto loan strategy!