HOUSTON-It's time for credit unions to think like McDonald's and advertise their lowest possible auto loan rate, even if that means members must take multiple products and services to get the great deal, according to at least one CU.
"It's value pricing and consumers understand that to get the low-priced sandwich you have to get the fries and the Coke, too," explained Don Mozingo, SVP-lending at First Community CU of Houston, which is promoting 2.80% APR on terms to 24 months. "If you are not advertising a low rate, it will be really difficult to get anyone in the door to even go over your loan options."
Mozingo acknowledges that the $700-million CU is being creative and hanging out a hook, but that's what's needed, he emphasized, to attract auto loans this year. "Auto loan volume is trending down right now. It has been a real tough year for car loans."
Competition in Houston is coming from banks and other credit unions, with rates below 3%, Mozingo said. First Community's pricing starts with a base 60-month, 4.20% APR (740 beacon score) ,and prices down 10 basis points each time the finance term is reduced by 12 months. "So 24 months is 3.90%," Mozingo explained. Loan-to-value below 80% cuts another 25 basis points, and loan amount above $50,000 loses 35 more. The CU also takes off 50 basis points when members choose two of the following three options: service contract, credit life and disability, or auto pay with direct deposit.
Mozingo said that the bulk of the credit union's auto financing comes in at about 4.75%, and that members do not feel that the CU's advertising is bait-and-switch. "We have not had any complaints or upset members."
What is unsettling for the credit union, according to Mozingo, are banks being flexible with their pricing and unclear on how they come up with some rates, many based on individual cases.
"In the old days you could pull everyone's rate sheet and get a good feel for market pricing. Not any more. The big banks have their own scoring models. When dealers fax out their callbacks from other financials and they have a much lower rate than what we are offering, we're left scratching our head wondering how in the heck they got to a certain rate on an individual."
