POTTSTOWN, Pa. — Diamond FCU is making a lot of auto loans to young adults these days, but the real payoff isn't the asset dollars — it's the relationship.
That's how the $400 million CU sees its new First-Time Auto Buying Program that makes it easier for young adults to get their first loan and then build credit. In the first half of the year, the program generated 191 loans for $2,247,830, signing up 143 new members.
Todd Rothenberger, SVP and chief marketing officer, said the credit union's objective is to get Millennials into a loan and then work with the member to establish credit, hopefully adding a credit card to the relationship within a year.
"What we learned in our research is that many financial institutions get young adults into a car loan and then forget about them," said Rothenberger, who also noted research indicated that the car loan is the financial product Millennials want the most.
A review of the local market also showed that financial institutions are not catering to youth, charging high auto loan rates and only giving a discount to young borrowers if they have a college degree.
Diamond's First-Time Auto Buying Program offers loans at 4.99% APR, two percentage points above the credit union's standard car loan rate.
"There was no local program, as well, to help young borrowers establish credit," explained Lori Levengood, SVP and chief lending officer.
The First-Time Auto Buying Program helps young adults build credit by letting them know how they are progressing in their credit-building efforts, explained Levengood. "These borrowers need benchmarks along the way to show them what they are working toward. Without them they may lose sight of the long-term benefits of good credit."
Steady Contact
The program keeps the credit union in steady contact with young borrowers and rewards these members for making payments on time. After six months of responsible payments the members are encouraged with a "Keep up the good work" e-mail, said Rothenberger.
"After 12 months the members start to see the benefits of the credit they've built. They receive a direct mail or e-mail congratulating them and reminding them that they can call the credit union to refinance their loan to a lower payment with their new and improved credit score, and they are pre-approved for a $1,000 MasterCard depending on their income."
After 24 months of on-time payments, members receive a $50 Visa gift card.
"This gives the credit union the chance to suggest other products and services young borrowers need, like a checking account, further cementing their long-term relationship," added Levengood.
