WASHINGTON — A National Credit Union Foundation reports suggested that CU auto loans unions to consumers with lower credit scores could enjoy a spread of almost 300% over loans to consumers with high scores.
Authored by Bill Myers, former CEO and founder of the $54 million Alternatives Credit Union, headquartered in Ithaca, New York, and now a senior fellow at the Aspen Institute, Steer Clear: How Credit Unions Help Car Buyers Avoid Predatory Lenders related the experience of the $894 million University Federal Credit Union in Austin Texas.
The credit union's 2006 data showed that the CU charged 17.00% on its car loans to members with the lowest credit scores versus 6.00% on its car loans to members with the best credit scores. This gave University a spread of 7.92% on the 17.00% loans versus a spread of only 2.68% on the better score loans, even with loan losses of almost 5% on the higher interest lending versus only 0.03% on the better paper, the report said.
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The report observed that at even a 17% interest and other more favorable terms, the CU was still the much lower cost option for these lower credit score consumers who faced interest rates of 25% or more from other auto lenders in their area.
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