SAN DIEGO -- USA Federal doesn't fund a remarkable number of classic car loans...about one or two a month...but what makes the product interesting is the underwriting.
While most credit unions will lend money for classic cars, they don't really offer a product specifically for that purpose. Instead, members apply for a signature loan, or a similar unsecured loan, and assign a higher rate to account for the increased risk.
The $704 million USA Federal, on the other hand, offers a full-fledged classic car loan, assigning the same rates as a used car loan, determining and certifying a value for the vehicle, and keeping the title on property as collateral until the loan is paid off.
"We were already offering the product when I arrived here in 2003. I didn't think anything of it, though, because we were doing the same thing at my last credit union, San Diego Metropolitan," said Cheryl Sisk, vice president of lending.
So how do they do it?
Members are approved using the same criteria as if for a regular auto loan, and the same rates and term offers are made. The loan isn't even coded any differently on USA Federal's Ultradata system, which Sisk said makes the loans impossible to track.
Really, the only difference lies in determining the vehicle's value.
James Clements, supervisor of consumer lending, said his staff maintains relationships with local classic car specialists, who are able to assign a value to the vehicle.
"We just have to take it to a licensed appraiser who can deem it a classic. We usually work with the local classic car dealers here in San Diego, then we run it past NADA just to be sure," Clements said.
Classic cars must already be in mint or near mint condition. Members who wish to borrow money to restore a vehicle must secure a signature loan, line of credit, Visa card, or other unsecured funding source.
Sisk said she's never heard of a classic car loan going into default at USA Federal, and suspects the loans don't carry much risk.
"Anyone who is in the market for a classic car is probably pretty well established. Typically, classic cars aren't driven on a regular basis. Anyone who is willing to pay $20,000 to $25,000 for a vehicle you basically garage isn't going to have problems making payments," Sisk said.
And even if borrowers do fall on hard times, they'll do what they can to keep it.
Sisk said back when she was at San Diego Metro, a member defaulted on two car loans, one for a classic car, and the other for a newer, every day vehicle.
"He was able to find a way to pay for one, and when it came time to decide, he chose the classic. I was kind of bummed, because it was an old Mustang, and that's my dream car! I thought I had found it at last," she said with a laugh.
It's no surprise that San Diego would offer a more competitive classic auto loan marketplace than other parts of the country. Not only does the vacation destination boast the best weather in the country, but San Diego is also a big military town, which means lots of retired men drawing regular retirement checks.
USA Federal counts enlisted and retired military as a significant portion of its FOM, and Sisk said that common bond, along with the weather, probably contributes to the popularity of classic cars in the area.
As baby boomers near retirement, the popularity of classic cars in the U.S. is on the rise. In the Phoenix suburb of Scottsdale, classic car auction house Barrett-Jackson sold $112 million worth of the in-demand vehicles in an annual auction this past January. Barrett-Jackson also conducts an annual auction in Palm Beach, Fla., and the April event boasted another $32 million in classic sales. Both events are so popular, they're broadcast on cable's SPEED channel.
An Internet search for classic car loans turned up a number of specialty lenders, but no credit unions or banks. However, the Barrett-Jackson Web site features Bank of America as a major corporate
sponsor, so the giants may be awakening to the burgeoning industry.
"The passion for auto collecting continues to thrive. Between the quality of cars being offered and the steady demand, all facts seem to indicate that savvy collectors are confident in the market," said Steve Davis, president of Barrett-Jackson, in a press release promoting 2008 auction dates.