Pay for food or a car? On the surface it seems simple, until you factor in that you need a car to get to work so that you can pay for the food.
Thanks to a high interest rate on her auto loan, that’s the trap LaTonza VanBuren found herself in until she was helped by One Detroit Credit Union’s Auto Bailout Program. The refinancing program is for car loans that are just too high.
The interest rate on VanBuren’s loan was (APR) 22.39%. Add that payment to the cost of paying auto insurance in Detroit, which is among the highest in the country, and she was obviously not in a great financial situation.
VanBuren was already a member of the One Detroit Credit Union when she saw a sign on the wall at the credit union’s office in April and inquired about it. Fortunately, she had all three things she needed – be a member of the credit union, have direct deposit, and a checking account.
The program cut her rate from that oppressive 22.39 percent to 10.95 percent, a reduction of more than 50 percent. It also offered her an easier payment plan. She also received an extra 0.25 percent off because she has direct deposit with the payment happening automatically each time her paycheck hits.
VanBuren now had the option to pay half the loan when her paycheck comes, and the other half later in the month. The simple ability to split payments gave her more room to breathe financially.
Now it isn’t just the present that is better for VanBuren, but the future looks bright as well. After all was said and done with the loan, she is now in good standing with her credit.
She is excited and thankful about the new loan situation.
“I love it, and I tell everyone I come in contact with who doesn’t have a car,” she says.
She’s already spread the gospel of the Auto Bailout Program around her work.
VanBuren’s choice of buying food, paying utilities or making a car payment is not a unique one. It is a problem One Detroit Credit Union wants to help solve but expanding its Auto Bailout Program to all qualified local borrowers, specifically those with extraordinarily high rates. Initially it was only open to existing members, their friends and family,
The initiative is part of the credit union’s long-term plan to be the financial institution for Detroit’s neighborhoods.
One Detroit Credit Union has invested $10.3 million in the program and has helped nearly 600 people reduce their auto loan rates by at least half since the Auto Bailout Program launched in 2012. In total the program has saved those using the program more than $2 million.
“Without us, more than $2 million would have gone to often predatory, lenders outside of the community,” says Hank Hubbard, One Detroit Credit Union president and CEO. “It is better to keep those dollars in the community for residents to use at the local grocery store, to pay utility bills, buy the medicines they need and for other major items that will help improve their lives.”
In the current round, which started just over a year ago, the credit union refinanced more than 300 loans with an original average annual percentage rate (APR) of 14.1 percent. The average rate at One Detroit Credit Union was 6.46 percent. That round alone saved members a total of $1 million.
“To put that in perspective, nearly two-thirds of the loans we’ve refinanced had rates of more than 10 percent,” said Hank Hubbard, One Detroit Credit Union president and CEO. “About a third had original rates of more than 18 percent and 10 loans had rates higher than 24 percent. There were cases where we cut someone’s rate from more than 20 percent to lower than 5 percent.”
In the last year the program reduced monthly payments an average of $54.16, or $3,476.43 over the life of the loan.
Reducing those rates helped many people keep their cars.
“Public transportation in the neighborhoods is almost non-existent,” Hubbard said. “The need for access to a reliable car is critical to bridge all of the most basic market gaps we see – unemployment, healthy food, education, affordable financial services and more.”
It is basic math that high interest rates make that difficult for many and that puts them in a dangerous, hard-to-break financial prison. The Auto Bailout Program may be just the thing for untold numbers of metro-Detroiters to break that mold.
“We are committed to our city’s transformation, which must include empowering Detroiters to improve their quality of life,” said Hubbard. “This program does just that. It has not only saved our borrowers thousands of dollars, it has helped them improve their credit scores, reduce their debt to income ratio and increase their net worth.
“We are altogether One Detroit,” he said.
It is often said Detroit put the world on wheels. The One Detroit Credit Union wants to help the city’s residents stay on them.