In an effort to reach out to its student membership-and compete with captive finance companies-U of C FCU offered a special auto loan deal for seniors graduating from the University of Colorado.
"We've been offering VISAs and overdraft protection for several years, so this was a way of building on our loan program for students," said VP-Lending Stacey Bingaman. "Our program was open to second-semester seniors with at least 105 credits, due to graduate in May. This is new for us. We're going to see how this goes, and then by fall we can determine if we want to expand it to all seniors."
One of the factors driving the decision to offer such a program is that many of the captive auto finance companies offer similar programs. "But the captives only allow for financing for new vehicles; ours is good for new or used vehicles," he explained.
No co-signer, no previous credit history and no proof of income or employment are required, because the whole point of the program is to help new grads get started in life.
"A limited credit history and uncertain job status make it difficult for graduates to get an affordable loan just at the time a car becomes essential for finding a job", said Rich Jones, U of C FCU's Marketing Vice President.
A car sale open to all members was strategically scheduled for the day after graduation. Despite the unruly weather-a morning snow storm took everyone by surprise-the CU made 25 auto loans that day, four of which were made under the special student loan promotion.
"We did have a few (graduates) who didn't qualify, so they needed to get co-signers," Bingaman related. "If a student has no credit, that's no problem. But if a student already has bad credit, then we needed to look at other options for them."
Few Credit Quality Issues
Interestingly enough, U of C hasn't seen a whole lot of the typical credit problem associated with college students-getting multiple credit cards and maxing them out. Although the CU offers a VISA to students, the $1,000 limit is designed to keep them out of trouble. Instead, the problems U of C has seen with some students are "ancillary" products, like cell phones.
"They'll get a cell phone, and then they'll use it more than they thought they would or let their friends use it more than they thought they would, and then suddenly they've run up a cell phone bill that they can't afford to pay," Bingaman observed. "Even if a student runs up $1,000 on a credit card, they feel they can stay afloat because they can just keep making the minimum $20 payment on it. But when you run up a big phone bill, the phone company expects you to pay it all on the spot. When they can't, the collection note goes on the credit history."
The loan, which applies to new and used vehicles, has a maximum amount of $16,000 and terms up to 84 months for cars 1998 or newer with a loan of $10,000 or more. Rates begin at 4.99% annual percentage rate and financing is available for up to the full value of the car.
To qualify, a student must provide proof of graduation and a minimum 3.0 grade point average and must a be a member of the CU.
"We know that some students don't immediately settle into jobs. They may be taking the summer off to travel, for example, so students have up to 90 days from the date of graduation to participate in the program," Bingaman noted. "After that, they'll be treated like any other member."