In the Motor City, access to a reliable vehicle is a critical need. Public transit, particularly between the city and suburbs, is lacking and leaves most residents in need of a car to get to work.
Many auto buyers have a steady income and don’t have issues paying off auto loans. However, many lenders rely solely on credit scores when determining whether to approve a borrower for financing and at what rate they are approved.
In the city of Detroit, 49% of citizens are either unbanked or underbanked. Detroit’s average FICO score is 608, which is among the lowest for large cities in the U.S., according to Experian. This leaves many first-time buyers saddled with an unaffordably high interest rate, if they aren’t denied credit altogether.
Detroit’s community financial institution,One Detroit Credit Union, created a solution for those looking to own their first automobile. Our First-Time Auto Loans program is designed for members who have not had a vehicle loan before, are purchasing their first vehicle and have no credit or poor credit.
“Particularly during these difficult times, access to reasonably-priced credit and lending opportunities is a critical need in our community,” said Hank Hubbard, CEO of One Detroit CU (pictured below right). Our goal is to help improve mobility and, subsequently, employment in Detroit.”
One Detroit CU began planning the First Time Auto Loans program in 2019, during discussions with the United Way for Southeast Michigan. The United Way has a program called “Center for Working Families” that has many great benefits, one of them being job placement. The problem was that many of their clients didn’t have access to a reliable vehicle. So the United Way could help them find a job, but they couldn’t get to and from work.
According to Megan Thibos, director of economic mobility initiatives for United Way for Southeastern Michigan, before this product was introduced, United Way’s clients often had little choice but to gamble on buying an aging vehicle of questionable reliability. This was usually done by entering into an exploitative loan contract with a low-end car dealership or by scraping together enough cash to buy the lowest-cost vehicle they could find.
“This program is helping low-income families access needed financing at an affordable cost so that they can purchase a reliable used vehicle. It has been a pleasure to work with the team to develop the product with the needs of our clients in mind,” said Thibos.
Predatory lenders run rampant in the Detroit region, offering high-interest loans to those with limited credit history. Often, the interest rates are double and triple that of a mainstream financial institution. This traps first-time borrowers into a cycle of debt and large payments that are difficult to sustain. Many of them are under water by the time they are ready to trade in their vehicle.
First Time Auto Loans first launched in June 2019 as a limited-time summer promotion. Within the program’s first 100 days, we helped 27 members and funded $370,657 in auto loans for first-time buyers. It was so popular that we brought it back in 2020.
Among the program’s features are no required co-signer, an 8.99% APR regardless of credit score and a 90-day employment record. Applicants could also receive a 1% Good Grade Discount for showing proof of a GPA of 3.5 or higher. These were all put in place to make the loans both accessible and successful in the long term.
One of the first members to take advantage of the program was Jacqueline Richmond. Ms. Richmond is prudent with her money and normally saves for big purchases ahead of time to avoid buying on credit. She hit a road bump, though, when it came time to finance a new vehicle: without a credit history other lenders wouldn’t give her a fair rate. Our First Time Auto Loan helped Ms. Richmond get into the driver’s seat at an affordable rate (8.99% APR).
As part of our partnership, the United Way’s Center for Working Families offers life coaching services to help members stay on track with loan payments. They’re able to help those who need a little extra support in navigating the terms of their loan and balancing their personal budget. Borrowers who participated in the life coaching program were eligible for a 1% discount on their loan rate.
“The financial literacy and support provided by the Center for Working Families have been critical to this program’s success,” said Hubbard. “We wanted to make first-time loans accessible for buyers who might fall outside the typical criteria for a first-time borrower. The coaching and support available through the United Way allowed our members to improve their financial literacy and allowed us to offer them a better rate on their loans.”
First-Time Auto Loans are designed to give everyone a chance to start building their credit with affordable, reasonable terms. If we can help them have a successful experience with their first loan, it’s setting them up for a future with strong credit and empowering them to control their financial destinies.
About the Author:
Joumana Mcdad serves as the Chief Strategy and Innovation Officer at 1DCU. In this role, Joumana is responsible for driving the credit union’s strategy, overseeing human resources, marketing and community partnerships as well as sales and member experiences. Results-oriented and focused on the big picture, Joumana actively engages with the local community – its people and grassroots organizations – to keep herself grounded and informed about the needs and gaps in the region and opportunities for the credit union to make an impact. Joumana joined 1DCU in 2018, bringing with her nearly two decades of experience in the financial sector. Most recently, she spent 10 years as an AVP of Sales at Public Service Credit Union. Prior to that, she spent 7 years as a Branch Manager at National Bank of Canada, where she excelled in identifying members’ needs, maintaining efficient operations, designing new products and developing new business. Joumana earned a degree in International Business in Windsor Ontario, Canada. In 2017 she graduated from CUNA Management School with a Credit Union Certified Executive Certificate.