Freedom First Federal offers nonprime auto loans through its “Responsible Rides” program (CU Mag 11/13, p. 40). Participants get much more than a loan. They enroll in a financial education course, get help in setting up a savings plan, and take an auto maintenance class.
Plus, the loan program manager goes car shopping with the members. “It’s work for borrowers to go through our process,” Prosser says. “People who say this is too hard are the ones we can’t help. We look for a level of commitment.”
In turn, the credit union commits to helping these borrowers achieve self-sufficiency. “This program is hightouch,” Prosser explains. “We invest time and resources in these people so we think they’re more likely to pay us. They feel they’ll let us down if they don’t make a payment.”
That approach is working. Both the delinquency and charge-off rates for these loans are below 0.50%.
Nonprime loans make up about 10% of the credit union’s total auto loan portfolio.
The credit union sets no minimum credit score for loan eligibility. Last year it granted 44 loans to borrowers who had no credit score.
The typical borrower is a single mother with an annual household income of $18,000. Borrowers are referred by one of the local nonprofits that partners with Freedom First Federal, an NCUA-designated low-income credit union.
All borrowers pay 9.99% in interest, and the average loan amount is $11,500. The credit union makes a “marginal profit” on these loans, Prosser says.
What’s more, he adds, “we hope to expand on the relationship with these members, and we’re also strengthening our relationship with our nonprofit partners in the community.”
NEXT: 'Story' loans