Rapid loan responses over the Web
give credit unions an edge over banks
By Michelle Samaad • Bankrate.com

Emergencies often require large amounts of cash -- but not much time to get it.

Many credit unions are riding to the rescue with rapid-fire online loan approvals for members who need cash in a pinch.

Using special software that can pull a credit report and respond to a loan request in less than two minutes, many credit unions can increase a line of credit or approve an emergency loan for anything from paying for a child's books at college to an urgent home repair.

And there's no need to worry if you're nowhere near your credit union, either.

Anytime, anywhere
"Credit union members may apply and be approved for loans from anywhere they have access to the Internet," says William A. Hammock, senior vice president for sales and marketing with FIData Inc., a San Antonio, Texas, company that provides loan approval software to more than 50 credit unions. "The member may apply via the Internet any time while at home, at work or in the credit union's office."

The way it works: A member applying for a loan starts by visiting the credit union's Web site. Then, she clicks on the appropriate button -- whether it's a loan for a new car, used car, motorcycle or boat; a personal loan or line of credit; or a credit card. She then types in her name and account number. The credit union automatically fills in the rest of the loan application based on the information from her file.

The member has the opportunity to edit the loan application before it's submitted for processing. It takes approximately five minutes for the computer to prepare the loan application and the member receives an answer in about two minutes.

When the process is completed, FIData sends the credit union a fax with the loan application data, the result of the underwriting process and the credit bureau report. If approval has been granted, the loan is processed according to the credit union's usual system.

For an unsecured loan -- a personal loan that doesn't require any collateral -- the member may receive the money immediately by electronic transfer. If the loan isn't approved, the applicant receives a referral to a loan officer, who often will assist the member in getting the loan some other way.

Competing with the big boys
Many credit unions have jumped onto the online highway to bring the latest innovations to their members. The motivators range from member requests to being able to compete with banks that often have larger automated teller machine networks and more branches. Going online allows credit unions to play with the big boys, say some industry experts.

"Credit unions will purchase the technology to be able to pass the convenience on to their members, whereas the majority of banks want a return on their investment," says Todd Brinkmeier, vice president of business and development at Digital Insight, a Calabasas, Calif.-based technology firm that offers Web services to credit unions and banks.

At Security One Federal Credit Union in Arlington, Texas, online applications are processed each day, mostly for car loans and home improvement loans, says Ron Fox, chief operations officer.

In the six months that the credit union has offered online loans, Fox says, members slowly are taking advantage of the newest service. It's something like when automated teller machines first came on the scene, he says.

"Most of our members still like to do transactions in person or over the phone," Fox says. "It's going to take some time for people to get used to doing business this way, but we're in it for the long term."

Pioneers in online banking
"Credit unions are competing with larger banks by offering mortgage and loan applications, checking, savings and credit card account information, and stock quotes," says Jim Bruene, editor of the Online Banking Report, an industry newsletter based in Seattle. "They were actually the first, along with smaller community banks, to bring their services and products online."

Community Credit Union in Richardson, Texas, the first financial institution in the nation to sell U.S. savings bonds through its Internet home banking system, now offers instant loan approval on such products as unsecured personal loans.

"The service is still fairly new but we anticipate that our members will acclimate to online loans the way they have to our home banking feature," says Kimberly A. Phillips, executive vice president of Community.

At Patelco Credit Union in San Francisco, the online loan application is used to cross-sell other products.

"During the Internet loan process, Patelco may offer information about our other member services, including credit insurance, credit cards and additional loan programs," says Chris Oldag, Patelco's senior vice president. Even if a member has only a standard checking account, he may be inclined to take advantage of other products -- provided the rates are enticing enough.

A stress-free process
While it's hard to say how many Patelco members are using online lending -- the service recently went live in March -- Oldag says the whole point of offering instant loan approval was to "eliminate the stress from the conventional loan application process."

While applying for loans online is convenient and quick, it may not be completely stress-free.

Lightning-fast approvals are easy for customers with squeaky-clean credit reports, but one late payment or a self-employed job history can bump an application into a lending limbo. Those who obtain loans online may still have to submit paper documents with handwritten signatures.

While lenders still lack the technology to "close the loop" on loans -- verifying the borrower, signing the paperwork and handing over the check, a recent study by Forrester estimates that consumers will obtain 8.9 million loans and credit cards over the Internet by 2003.

Think before you click
In the meantime, consumers should do their homework before clicking the "send" button on that attractive Internet loan.

• Shop around for the best interest rates on the Internet. Most Web sites feature rate watches that can be set up to notify you about the loan or rate you want.
• Ask about pre-approval fees. Most online companies don't charge pre-approval fees simply to attract buyers. But in some cases, not only does the company charge a fee to file an application, it charges an extra fee for consulting a loan officer.
• File more than one online loan application -- a consumer can use the different rates as leverage at each lender to get the best deal.
• Compare mortgage qualifiers and refinance calculators. Even with the same financial information, online companies will give vastly different loan spreads and affordability ceilings.

While credit unions may still have a way to go in online lending, Bruene says they were still ahead of the pack, offering online banking years before the mega-banks came aboard.

"For credit unions, it's always been a question of how can we serve our members better, coupled with what members were asking for to make their lives more financially convenient," he says.

-- Posted: April 28, 1999