Credit Union Underserved Auto Loan Program Is Members' Only Hope
By Gina Ragusa Published September 11, 2011 Credit Unions Online
"Bring us your bruised, your damaged and un-credited"...is roughly what many credit unions are telling its membership and the community. A champion of "people helping people," credit unions are on the forefront of working with members to help them achieve their goal of car ownership, regardless of credit or less thereof.
Banks typically only grant loans to the top tier paper and while dealer financing may match you with loan but at an interest rate that rivals what you would find on a credit card.
Credit unions recognized the need for quality, low-rate auto loans and many are offering special programs geared toward the underserved, low credit market.
Mandy Minette, Product Manager/Marketing at TruWest Credit Union ($757 million, Tempe AZ) says that the credit union wants to provide all members with access to competitively priced auto loans.
"As a credit union operating to serve our members rather than shareholder interest, our goal is always to balance the desire to approve as many loans, at the lowest rate as possible without doing anything we believe compromises our members or puts the rest of the Credit Union at risk."
In fact many credit unions across the country have echoed Minette's sentiment as evident with the number of products like "second chance checking." In addition to TruWest, credit unions like Los Angeles Federal Credit Union, Tucson Federal Credit Union and JetStream Federal Credit Union offer a checking account geared toward giving the bad credit member a new chance at restoring credit.
Credit Union Auto Loans for the Underserved
Because of the need to provide low rate auto loans to members who may be struggling, credit unions like TruWest have created an auto loan product that provides the lowest possible rate to the underserved membership.
Often, the "underserved" are those who have not yet established credit or have a blemish on their credit report due to a death or divorce.
Many credit unions take the approach of evaluating each member's situation individually to determine auto loan rate, instead of taking a quick glance at the credit score and moving on.
Minette says that TruWest has always extended auto loans to as many members as possible and recently realized that members in the "underserved" category were receiving higher rates than necessary.
"We've always offered loans to our members across all credit tiers, yet for obvious reasons the rates on lower tier loans were substantially higher than those for our members with excellent credit," Minette says.
She says that through extensive analysis, the credit union discovered a certain trend in categories of auto loans in the lower credit tiers.
"We have found that certain categories of auto loans in the lower credit tiers that were previously priced higher, specifically those at shorter terms and lower LTVs, have exhibited much less risk and therefore we can afford to lower their rates to be much closer to those regularly offered our members with excellent credit."
Underserved Lending Often Partnered With Education
True to the hearts of credit unions, financial education and member training is often associated with underserved auto loans or checking accounts. "TruWest indeed offers financial education and counseling to all of our members, free of charge, to help them build and maintain a strong financial future," Minette says.
CommonWealth One Federal Credit Union offers both a second chance account and completion of a financial literacy course and St. Louis Community Credit Union's second chance account provides the member access to numerous financial fitness resources.
Minette adds that even one of TruWest's credit cards offers its younger, less credit-established members a new start. "Our Credit Builder Credit Card offers members the opportunity to increase their credit limit by completing financial education courses online. And we don't stick them with an absurd interest rate just because they have a less-developed credit history!"
In fact TruWest is offering $50 cash and 90 days with no payment to anyone who opens a new TruWest auto loan.