TEMPE, Ariz.-TruWest Credit Union has lowered its auto loan rates on second- and third-tier credit-and is offering additional incentives for booking loans-all in an effort to boost its portfolio.
Mara Friedman, VP of marketing for the $760-million credit union, which serves the greater Phoenix area and Austin, Texas, said TruWest's analysis found members with B or C credit are not a higher risk than A borrowers, they just have an "imperfection" on their credit report.
"We are not going after subprime loans, because they are risky for the credit union and for the other members," she explained. "But we now offer a rate for FICO 640 that is two points higher than what we call our 'superstar rate.' "
A credit score of 640 is "not a great score," according to Friedman, but TruWest believes those members "still deserve a great rate. This is not D paper.," she noted. "Many people these days have a missed payment or two."
With the rate reduction, a TruWest member with C credit can get a vehicle loan for 4.99%. The credit union's best rate had been 2.99% until it was lowered to 2.75%. The 4.99% rate is available for new purchases or refinancing existing loans, but only for model years 2009 to 2011.
"It is not a specific program with a name, it is just our usual auto loan program with a few tweaks," said Friedman.
In addition to the lower rates, borrowers receive $50 cash for opening an auto loan of $10,000 or more with TruWest, and they can choose to delay payment for the first three months. In that case, there would be 57 payments due at an amount nominally higher than if all 60 payments were made.
The CU also has loans for D and E borrowers, but Friedman said those rates are higher to reflect the risk. "We didn't jack up the rates for Ds and Es, but we significantly lowered the rates for Bs and Cs. We are trying to balance doing the best thing for our members by putting as many loans out there as possible while accounting for risk."
Beating The Market
According to Friedman, the new rates "probably beat 90% of the competition" in the CU's two markets, especially for B and C borrowers. Membership is open to anyone who lives or works within Maricopa County and parts of Pinal County in Arizona, or Travis and Williamson Counties in Texas.
Asked if targeting more loans to "imperfect" borrowers would bring increased scrutiny, Friedman said TruWest's data supports the assertion B and C auto loans are not inherently risky-especially those at the shorter terms and lower LTVs-meaning it can afford to lower the rates.
"Because this pricing strategy is based on the risk posed by these loans and consists of us lowering rates on some tiers rather than increasing on others, we don't anticipate this causing any issues with our regulators."
