Members Get a Second Chance With Niche Financing
When a teacher recently sought relief as she struggled to make the $500 monthly payments on her Volvo, Carolina Cooperative Federal Credit Union felt it had just the solution she needed.
Through a partnership with Enterprise Car Sales, the $43 million credit union in Charlotte, N.C., launched what it calls its "Basic Transportation" program. Enterprise markets the service as "Vehicle Connector." Credit unions, which can qualify members regardless of their credit score, help borrowers select a car that meets the buyer’s needs and price range. Enterprise pays Carolina Cooperative $250 for every loan approved. The credit union charges a 15% rate on all car loans, which are geared toward members who have less than stellar credit.
"Indirect lending–the problem is it doesn’t work properly. It’s not designed for credit unions," Aranguiz said. "You can really lose your shirt on it. A lot of credit unions took huge losses. Even in normal times, you’re likely to have three times more delinquencies."
He acknowledged that when interest rates are low, indirect lending has the propensity to be profitable. However, if rates start to rise, a credit union’s margin can easily be eaten up. Some are blinded by the amount of revenue brought in the first 12 months but then trouble sets in when the losses start to mount. Aranguiz has seen the fallout at other credit unions he’s worked at, and knew coming to Carolina Cooperative that it was not a path he wanted to go down.