Are there any credit unions out there doing 0% loans with the dealer paying a fee or the interest to the credit union up front? We have had three or four dealers ask about us setting up a program for them to do this, but I have been unable to find anyone with such a program currently operating. Thanks!
June 26, 2008
June 26, 2008 at 1:49 pm
At the time I was working for my credit union, as a manager for indirect lending, we had established a special program with a non-captive auto manufacturer to represent them in our state. This program allowed the credit union to do 0%, 1.9%, 2.9%, ext. financing on their new auto line. Terms and rates were set by the manufacturer and the credit union would receive a certain percentage of the projected current credit union lobby rate interest up front on the term of each retail contract. Example would be a 7% lobby rate at 0% contract rate for 48 months at $15,000. Total interest on loan is $2241.30. Credit Union would receive a check from manufacturer within 30 days for $1680.97 (75% of the $2241.30).
Of course this is only an example, but the percentage can be negotiated with an individual dealer on a buy down contract where that dealer buys down the interest rate. Please check with your state regulators and attorney.
The dealer usually sets the qualifiers for the loan, which usually reguires some kind of downpayment. You negotiate anywhere from 100% to _____ buy down. Recommended not below 75%. Numbers need to be run on all possible scenarios. How you apply this interest income is totally up to the accounting area. Depending on your yield, or other factors, you may want to place the interest in a reserve and distribute it as the loans mature.
This type of program does tend to attract the low risk buyers, but does not bring them in in droves. However it is a program that the independent dealers can advertise and because of the credit unoin’s willingness to work with the dealers, this can earn you alot of regular business. This is one of many possible “win win” situations that can benefit the member, credit union and dealer.
As with all indirect lending, if managed correctly, everyone can win.
June 26, 2008 at 3:57 pm
Thanks for the input Bob. We have been in discussions with the state examiners and they are requiring that we distribute the interest as the loans mature. The ability to strenghten our ties with the dealers and to deliver customers to them is a major factor in our pursuing this idea. I had also wondered if anyone had looked at doing a 0% loan for 24 months with the interest rate reverting to 7% after the 24 months is up. This would encourage the member to buy a different vehicle after the 24 months and it would lower the amount that the dealership would be required pay.
October 4, 2008 at 8:08 pm
Truliant FCU does that, I think.
October 8, 2008 at 9:32 am
Software issues are also a concern. Make sure you run a couple of bogus/example loans through your application management system. Let it cycle through at least two collection terms (months etc…) and make sure that everything posts correctly.
Loan Review types lick their chops when they see these type of programs, and with good reason in many instances.
Members may not be as pleased as we would all hope. They will eventually figure out that the dealer raised their price in an amount equal to or greater than the pre-paid interest charged as part of the program:). Then it’s the CU that’s in the line of fire in addition to the heathen auto dealer!
October 16, 2008 at 7:23 pm
This is off topic slightly, but I just read that GM is making a push to get people to buy cars with other-than-GMAC financing (which you can only get with a 700+ credit score). According to Autoblog.com, “starting Friday, GM will launch a ‘Financing That Fits’ campaign on a national level. Through advertising on television, newspaper, radio, and the Internet, GM will promote dealer financing with GMAC Financial Services and, for the first time, with other lenders.” AP says this involves a 6-year-old database that “lets dealers locate banks, credit unions and other lenders willing to make loans based on a buyer’s credit information.”
Does anyone know about this database and whether they are in it? Is this a good opportunity to make loans if there are some serious GM buyers out there?