An auto finance company seeking to use social and financial data to secure lower rates for first- and second-time car buyers took top prize at a Silicon Valley event for startups this week.
The company, called Neo, notched the grand prize at the Founder Showcase, a quarterly event that enables early stage businesses with less than $250,000 in funding to pitch ideas to CEOs and investors with the hopes of acquiring seed money.
Neo, founded by Navin Bathija, intends to partner with dealerships to assess borrower creditworthiness using indicators other than credit scores. In a pilot, Neo would expect dealer-partners to provide 20 to 40 applications per month, which would translate to $600 per transaction for the startup.
Neo seeks $750,000 in seed money to launch its pilot.
In his presentation, Bathija explained that a young consumer who makes $80,000 a year looking for an $8,000 car loan could be subject to a 12% interest rate loan because of his limited credit history and limited job history.
He went on to say that each year, there are six million first- and second-time buyers with limited credit histories looking for loans, but 40% of those people are declined because of low credit scores; those that are approved generally struggle with high interest rates.
In reality, though, “the loss-risk on a large number of those loans is less than 1%,” he said. “People really need their cars and tend not to default on them.”
With the help of Neo, the customer getting the 12% interest rate on the $8,000 car was able to get an adjusted rate of 6.25% based on the new analytics and risk formulas that Neo uses to get loan approvals: social data and the mere fact that the consumer can pay for the car.
Though the big winner, judges on the panel expressed concerns and challenges that might be ahead for a company like Neo, like the large amount of capital that would be needed and the competitive market that currently exists in the sector.
Check out this video for the full presentation and judges’ comments:
9th Founder Showcase Champion Pitch – Neo from Founder Institute on Vimeo.
