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Encore Used Car Loan – City County CU of Fort Lauderdale

Credit Union :City County CU Of Fort Lauderdale
Assets :$294,000,000
Address :P. O. Box 14548 | Ft. Lauderdale, FL 33302-4548
Start Date :2004
Open / Closed End :Open

Loan Underwriting Qualifications :

User Qualifications:

  • Credit scores between 500 and 599
  • Derogatory trades acceptable, except must have at least three positive trades (rated as R-1 or I-1), one of which must be positive for a 12-month period
  • No repossessions or foreclosures within the past 36 months

Rates, Fees, and Terms :

  • 13.99% APR
  • $20,000 maximum loan amount
  • Loan amount up to 100% of cost of vehicle plus tax and license and 3% program fee that members pay as part of the loan

Vendors/Systems/Technology Used:

  • No special technology necessary.

Target Market :

Those members who would otherwise be target candidates for predatory “buy here/pay here” car lots where the interest rate could be as high as 36% and the quality of the vehicle is questionable.

Marketing Strategy:

Credit reporting agency is used to pre-screen and pre-approve members based on qualifying requirements. Members are sent a pre-approval letter which only has value at the Auto Branch of Fort Lauderdale, an affiliated dealership of the credit union. While the dealership owns the inventory of vehicles, the CU owns the site and provides the staff to close the loan.

Program Results/Statistics :

  • Charge off ratio for loans originated between 2004 – 2006 is approximately 6.3%
  • Net yield for the loan program for this same period including fee income from sale of warranty, GAP, life and disability, plus fees, is 14.63% after charge offs and marketing expenses
  • Loans originated between 2007 – 2009 have lower charge offs and higher yield

Member Benefits:

  • Members are assured of getting a fair price and a quality vehicle.

Additional Information :

City County CU of Fort Lauderdale has been offering its Encore Used Car Loan since 2004, according to Lloyd Gill, EVP. The dealership pays the credit union a marketing fee for each loan that helps offset loan losses. Initially, the credit union put 10% of the loan amount into its allowance for loan losses, but has since reduced the amount because losses were not as high as anticipated. Charge offs represent about 6% of loans made. Collection efforts for these loans begin when payments are five days late, because they are considered riskier loans.

Originally, the program required members go through budget counseling, but subsequently that requirement was dropped. Counseling made no difference in the default rate, notes Gill. The pre-approval letter is a great marketing tool, he states. It sends a positive message to members – “you’re approved.”