A year and a half after quitting its lagging indirect auto lending business, National City Corp. has streamlined its application process for direct auto loans.
The Cleveland lender’s Check Ready loans, which were introduced last month, are disbursed in the form of blank checks that can be written to any licensed dealer, up to a ceiling amount — giving borrowers more power to bargain when they arrive at the dealership, the company said. The loans can be approved in minutes, and the checks are made available the next day, which National City said is a big improvement over traditional auto financing. Traditional loans can take days to process and require borrowers to shuffle between the lender and dealer to complete paperwork.
Using Check Ready, borrowers have “much better negotiating leverage … as a cash buyer with the dealer,” Richard McNutt, the executive vice president of consumer lending at National City, said last week. “So they walk out with more car at a better price. It minimizes the back and forth entirely because you have a check in hand the next day.”
National City acknowledges that it is not the first major lender to offer a streamlined auto finance product. Capital One Financial Corp. unveiled a similar product six years ago called Blank Check, which also can be approved online within 15 minutes and provide borrowers with a blank check within a day.
“The Blank Check really helps empower the consumer to shop like a cash buyer,” said a spokesman for Capital One, describing the McLean, Va., company’s product.
Unlike traditional auto loans, which consider both a consumer’s creditworthiness and the value of the collateral, Check Ready loans are approved using a credit score only, Mr. McNutt said. After the check is cut the borrower must give a vehicle identification number and other details about the purchase for collateral verification.
Mr. McNutt acknowledged that back-end verification could leave National City vulnerable to fraud but said it would be caught early on. No instances of fraud were reported during a spring pilot test, he said.
The checks are valid for 45 days after issuance and can can finance up to 100% of the purchase, plus taxes, registration fees, warranties, and other expenses.
The pilot version, tested in Indiana from March through June, found that the average purchase price of vehicles bought under the program was 50% higher than in the traditional auto loan program. Borrowers “are comfortable with the fact that they know how much they are eligible for,” Mr. McNutt said, “and they are tending to upgrade their purchases a little bit because of it.”
Elaborating in an e-mail, he said volumes under the pilot test were “good but not great.” The company expects further growth as it begins marketing the program this month, he said.
National City said it hopes the loans will fuel cross-selling opportunities for mortgages and other products offered by the $138 billion-asset banking company. It abandoned the indirect auto loan business because it offered no cross-selling opportunities and because it was generally less profitable, Mr. McNutt said. The company took a $40 million charge for writedowns and severance expenses when it quit the business in 2005.
“We just couldn’t control the transaction at the point of sale,” Mr. McNutt said of the indirect business. By contrast, “in the direct business, we can build a relationship with a customer, not only providing them with auto lending but [also] expanding the relationship into other products and services.”
Mr. McNutt said he expects more banks to offer streamlined auto-loan products.
