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HOBOKEN, N.J. — According to an article written by Credit
Union Times' Michelle Samaad, credit unions seem to be benefiting from used-car
loans' recent strong portfolio performance.

And Samaad even went on to write that some credit unions are
seeking "nontraditional" methods to keep the lending surge going and returning
to residual financing methods as the economy continues to recover.

"Among them (nontraditional methods), leases and balloon
loans, which advocates say can bring in higher yields than  traditional financing and potentially offer
more savings for members on their monthly payments," Samaad reported. "Typically
referred to as residual financing, the program requires less of a down payment,
shorter loan terms and more options at the end of the term."

And within the article, officials stated that as dealers are
taking advantage of these options, some are sending numerous customers to the
credit unions, potentially providing shoppers with easier, more flexible
financing options.

As this trend continues, Samaad reports that "the
competitors that most credit unions face in the vehicle lending space may have
to rethink their financing strategies."

Backing this assertion up, the publication noted that since
February 2011, used-vehicle loans have been among the biggest contributors to
the industry's overall lending numbers, according to the April edition of CUNA
Mutual Group's "Credit Union Trends Report," which tracked data through
February.

This trend also marks a shift from loan terms that were
stretched out over five years and up in an effort to make vehicles more
affordable during the recession.

The Credit Union Times then went on to highlight examples of
this shift towards residual financing within the segment.

First, the publication noted the $356 million Security
Credit Union in Flint, Mich., has been offering a residual-based financing
program since late 2011, according to Chad Merrihew, vice president of
operations.

In setting up this program, Security CU partnered with Auto
Financial Group — a Houston firm that provides residual-based finance products
for credit unions.

This program enables members to "get a low payment, flexible
terms actual ownership of the vehicle and several end-of-term options,
including the lease-like option of being able to surrender the vehicle and walk
away in lieu of making the final loan payment," the article stated.

So what exactly do programs like this mean for dealers and
their customers?

Merrihew was reported saying the leasing and balloon payment
activity is a 50-50 split between new and used vehicles. By offering a
lease-like loan, members have been able to get cars they normally wouldn't be
able to afford through an average savings of 30 percent to 40 percent on their
monthly payments, he went on to say.

Moving along, Credit Union Times also cited that the $898
million Corning Credit Union — which has also partnered with AFG  — has employed the methods of lease or
balloon payments, as well, and are reaping rewards as customers that utilize
these financing options are tending to stick to them.

David Walker, vice president of lending at Corning Credit
Union, was reported saying that members who have opted for a lease or a balloon
payment have been a "pretty loyal group to residual financing."

"We found that members who are used to leasing or balloons
keep coming back to them," Walker was reported sharing.

Walker also told Credit Union Times that tn the last
quarter, 10 percent of Corning's volume has come through residual financing for
auto loans, also noting that "the three to four year terms have been much more
attractive to members than the 84 or 96 months that some competitors have been
offering."

Interestingly, Walker was also reported saying that
educating and contacting local dealerships about residual financing has helped
the credit union's "growth."

"Members have several options at the end of the term,"
Walker was quoted as saying. "They can sell it out right and get more than the
residual value or turn it back in to AFG and they resell it. Most of the
vehicles turned in are being sold or traded."

To view the whole Credit Union Times article, see here.