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Trust Funding Auto Loans

Credit Union :Unitus Community
Assets :$805,000,000
Address :P.O. Box 1937 | Portland, OR 97207-1937
Start Date :September 2008
Open / Closed End :Open

Loan Underwriting Qualifications :

  • Credit challenged borrowers who don’t qualify for traditional CU financing, yet need an affordable and reliable car
  • Meet with credit counselor to complete a monthly budget and to determine payment affordability
  • No minimum credit score is required
  • Additional underwriting criteria (unsecured limits, past due restrictions, etc.)

Rates, Fees, and Terms :

  • As of March 2010, the rate is 9.99% for all borrowers (fixed rate)
  • Low down payment (equal to the first month’s payment)
  • Terms up to 60 months
  • A GPS locater/disabler is attached to the vehicle (cost is added to the loan)
  • Warranty and GAP coverage are encouraged

Vendors/Systems/Technology Used:

  • The Trust Funding program is offered through Smartway Advisors, which is a Unitus-owned auto-buying service (CUSO). As part of the program, financial counselors meet with applicants to ensure they are getting the right car, at the right price, with an affordable payment. Once approved, Smartway Advisors helps to locate the vehicle and to secure financing with Unitus.

Target Market :

  • Employed applicants with credit challenges who need an affordable car to get to work
  • Smartway Advisors also provides a Credit Builder program for those with limited credit

Marketing Strategy:

  • Credit union staff refers members who don’t qualify for the CU’s regular auto loans
  • Dealerships who can’t qualify applicants for traditional loans through the credit union direct lending program refer them to Smartway Advisors
  • The CU website also markets the program
  • Marketing to the general public and through business development efforts Viral marketing (web)

Program Results/Statistics :

  • As of March 2010, 415 Trust Funding and Credit Builder loans are on the books for $6.5 million
  • Unitus is making on average 30 to 40 such loans per month
  • Since inception in September 2008, only four cars have been repossessed and there is no reportable delinquency in the program

Member Benefits:

  • Borrowers receive a quality car, at a reasonable rate, with a payment they can afford
  • Typically, these borrowers would buy a vehicle at a buy here/pay here lot that might sell them a poor quality car they can’t afford, with an extremely high interest rate
  • Members receive budget counseling from a Smartway Advisor financial counselor and develop a trusting and loyal relationship with that person

Additional Information :

The Trust Funding and Credit Builder programs take people out of the impulse buying moment, says Paul Kirkbride, VP of Credit Services at Unitus. “Members may not get their dream car,” he says, “but they get a reliable car they can afford.” Trust Funding does not require a minimum credit score, says Kirkbride, because the underwriting focus is on cash flow and ability to repay.

The credit union and the CUSO work together to develop and maintain sound underwriting guidelines. A budget is completed to ensure the borrower can afford the payment. The counselor also tries to avoid any financial surprises. For example, says Kirkbride, “If the borrower has significant past due debt, he/she will eventually have wages garnished. If that happens, cash flow is affected and our loan is in jeopardy. We try to avoid those kinds of surprises.” Borrowers who make 12 consecutive on-time payments can qualify for a small limit credit card.

Borrowers also agree to have a GPS locater and a disabler installed in the car at the time of purchase. The cost is approximately $300. If needed (e.g. borrower misses a payment), the CUSO can shut down and locate the car. Kirkbride justifies the added cost because of the higher risk these loans pose even though only four loans have been repossessed to date. “The GPS locater is a big help,” notes Kirkbride. “We found one car in Alaska and another on the East Coast. It would have been difficult to locate these cars without the GPS system.” He also points out that so far the deficiency balance on a Trust Funding loan was less than half that of the CU’s traditional auto loans. “Even if delinquency grows, losses should remain somewhat manageable,” he says.

The partnership between Unitus and Smartway Advisors truly benefits both entities. As an auto broker, Smartway Advisors can purchase vehicles at wholesale and sell them below retail. Additionally, Smartway is on the hook, so to speak, as they guarantee repayment on Trust Funding loans for 24 payments. So, when the credit union does have to repossess, the credit union is made whole and the vehicle is then sold back through the program by Smartway Advisors, notes Kirkbride.

Additionally, early stage collection is handled by the CUSO and it starts when the borrower is just one day past due. The initial phone call is from a Smartway counselor, explains Kirkbride. “That’s where the relationship exists. That’s the person who closed the member’s loan. Doing it this way also ensures that all parties have skin in the game,” concludes Kirkbride.