'Cash Back Auto Loan' Attracts Strong Response

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The $675-million USE Credit Union here said it has developed an effective counter to auto manufacturers' financing with a new "Cash Back Auto Loan."

The program is available to USE's 80,000 members and those in the general public who are eligible to join the CU because they live, work or worship in the five California counties it serves-San Diego, Santa Clara, Alameda, Sacramento and Yolo. The program offers a cash rebate equal to 1% of the amount borrowed, up to $1,000. Terms out to 84 months are available, as are interest rates as low as 3.99% if the borrower uses automatic payment from a USE checking account.

The cash back option is available for the purchase of a new or used automobile, as well as the refinance of an existing auto loan. Applications must be received by USE by Sept. 30, 2003.

Kevin Moyle, USE's marketing manager, told The Credit Union Journal he is confident USE is the first credit union to have a cash back auto loan. He said the CU began testing the concept with a pilot program in April and May.

Response to the pilot program was overwhelming, he said, as branch-driven financing increased 58%. From January to May 2003, USE's average monthly branch-originated loan volume, for new and used vehicles combined, was $2.6 million. In June and July, that figure shot up to $4.1 million per month.

Offer Is Extended

"The original end date for the offer was July 31, but it was so successful, we decided to extend it to September 30," explained Moyle. "We lowered the interest rate from 4.69% during the pilot program to 3.99%, but in this interest rate environment, we can't guarantee that rate any more than a few months at a time."

The program will be re-evaluated as the end of September approaches, he added.

When purchasing an automobile, many consumers are faced with a choice from the dealer-take the subvented rate (as low as 0%) or a higher rate and a rebate, noted Moyle. In most cases, he asserted, taking the rebate and getting a low-rate loan from a credit union is the best option.

"It is better to take the cash up front," he said. "You come out hundreds of dollars ahead."

"We came up with the idea of the cash back auto loan as a neat thing for consumers, but it also is an educational experience," Moyle told The Credit Union Journal. "We have a calculator on our website that allows people to compare the cost of 0% versus a rebate. We tell people 'don't guess.' The whole idea of a credit union is to inform the public what the best choices are."

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