Refund On Interest Paid Being Used To Boost Auto Lending
SESLOC Federal Credit Union is pursuing a new strategy to reward loyal members and boost auto loans at the same time.
Under the program, SESLOC is offering to refund to members 25% of the interest paid during 2005 on any loan for a car, boat and RV.
To price its loans, SESLOC uses a risk-based lending model it calls "earned rate lending," with members receiving a particular rate that reflects their credit score. For example, 60-month, new vehicle loans were given fixed rate APRs from 4% to 13.75%. Fixed rates on new vehicles are 4%; 4.25% for used cars. Used car loans could qualify for up to 60 months at different rates and boat or recreational vehicle (RV) loans could be extended for as long as 120 months.
SESLOC has always sought to reward its members, according to Marketing Director Carla Swift. For instance, it has returned funds to members via its VISA card program.
Like many parts of the country, Swift noted area car dealerships advertise constantly and are frequently in the public eye. Moreover, many SESLOC members have been tapping existing home equity lines of credit to buy cars, leaving the CU's auto lending program flat.
"Car dealers are so aggressive, sometimes people forget we do vehicle loans," Swift said. "It's like they forget and we need to bring them back."
The refund program was launched in February and March 2005 and has resulted in an overall boost of vehicle loans of 10%, Swift said. Loans originated as far back as January 2005 were also included in the rewards program, she said.
Another goal of the program was the long-term value of new loans that stay with the CU. The loan refund program helps the $340-million SESLOC start new loans and keep them in house. "We recognize the value of our members for loans," she said. "In the long run, it's better for everyone."
In fact, SESLOC staff is so willing to work with its members, that any member who could prove that they had improved their credit rating score, their existing loan could be re-worked at a better rate, according to Swift.
Swift said most of the new loans were for cars and trucks, most likely attributable to higher gasoline costs associated with RVs and boats. Member accounts in good standing will be credited with the 25% interest refund on Dec. 31, 2005.