A Low-Income Auto Lending Model

For decades, the Federal Housing Administration has helped low-income borrowers become homeowners. Now, a Roanoke, Va., credit union has come up with a program meant to mimic that dynamic for auto lending.

With one in 12 households in Freedom First Credit Union’s footprint lacking reliable transportation, the credit union secured a $25,000 innovation grant from the National Credit Union Foundation. Then it partnered with Total Action Against Poverty, New River Community Action, and Enterprise Car Sales to implement the Responsible Rides Auto Loan Program.

The program is designed for borrowers who can’t qualify for traditional auto loans because they lack credit or have damaged credit histories. It’s open to people with household incomes of $44,000 or less for a family of four.

Approved applicants must attend financial education and car care maintenance classes before they can select a vehicle. Enterprise provides the cars, which generally cost about $9,000. Borrowers are granted 60-month loans at 9.9% interest, which roughly translates to payments of $200 a month, including insurance.

As of October, 42 applications had been approved. The credit union’s goal is to offer as many as 100 vehicles in the next two years.

So far, the credit union has yet to record a loss on the loans, and its net yield has averaged 1.98%.