Can’t afford that new car payment? No worries. Neighborhood Credit Union will let borrowers off the hook if they lose their job or have a major medical situation. The credit union has launched an innovative bundle of supplemental insurance options on auto loans, most notably the “walkaway” clause allowing borrowers to escape their obligation without penalty should they be unable to pay within the first six months.
Dubbed the “MPower Vehicle Protection Plan,” the package includes the following four components, all complimentary:
- Vehicle Return Program – Members can walk away from their loan obligation if uncontrollable circumstances cause loss of income within 6 months following the purchase. Available for all vehicles.
- Paintless Dent Protection – For the first 3 months following the purchase, consumers can keep their car looking new with coverage for minor dings, dents and scratches (basically cosmetic fixes that don’t require a new coat of paint). Limited to vehicles with less than 36,000 miles.
- Powertrain Coverage – 3-month limited powertrain coverage covers engine and transmission repairs. Limited to vehicles with less than 36,000 miles.
- Tire & Wheel Coverage – For the first 6 months, tires can be replaced or repaired if damaged by road hazards. Limited to vehicles with less than 36,000 miles.
Vehicle Return “Walkaway” coverage kicks in when someone experiences:
- Involuntary unemployment
- Physical or mental disability
- Loss of driver’s license due to medical impairment
- International employment transfer
- Self-employed personal bankruptcy
- Accidental death
The “Vehicle Return” option could be a big benefit to at-risk borrowers. If someone didn’t feel like they had a ton of job security, they may think paying for the ability to walk away is worth it. A tepid consumer could feel better knowing there would be no consequences: no financial penalties, no punitive fees, no ugly repossession situation and no damage done to their credit score. That’s a healthy mix of rational and emotional pluses.
Too bad this package wasn’t available 5-6 years ago prior to the subprime meltdown, because it could have saved a lot of consumers the pain and misery associated with auto loan defaults.
Extended Coverage Available… At a Cost
Credit union members can choose to purchase additional coverage after the complimentary period has expired. They can choose which of the four coverage options they’d like to extend — or keep them all bundled together — for three, four or five additional years. The cost for these options varies depending on the year, make, model and mileage of the vehicle. But as an example, if a member just wanted to have the “Vehicle Return” walkaway option on a typical new car, it would cost around $640 over the life of the loan.
Complimentary Car Buying Service
Neighborhood also offers members a free car buying service. A member who is pre-approved for an auto can contact the credit union’s “Vehicle Locator Specialist.” The member can describe the vehicle they want and Neighborhood will handle the rest. The Vehicle Locator Specialist will do all the research, find the car in the appropriate price range, and take care of the paperwork. All the member has to do is sign and drive.
Recently Neighborhood CU, which has $314 million in assets and around 31,000 members, began offering 72-month auto loans with a 2.74% APR and 90 days no payments. Rates on similar loans at the credit union were at 2.99% earlier this year.
Turn-Key Loan Acquisition & Retention Service
Neighborhood CU is offering its supplemental auto loan coverage through Southwest Business Corporation (SWBC), a widely diversified financial services company providing a range of insurance, mortgage and investment services to financial institutions, businesses and individuals. SWBC has various relationships with over 1,000 credit unions.
SWBC acquired exclusive distribution rights for the “Walkaway Vehicle Return” program from EFG, a complex finance and insurance company specializing in the automotive industry. EFG, who pioneered the Walkaway concept, also markets its services directly to credit unions.
EFG claims its “Walkaway” product can increase loan volumes by as much as 18% over a six-month period.
“Credit unions that offer ‘Walkaway’ close more loans, increase member relationships and reduce portfolio risk,” says EFG on their website.
Mark Hein, CEO of the credit union division for SWBC, agrees. “‘Walkaway’ positions us to help credit unions differentiate themselves, increase loan volume, generate non-interest and fee income, and drive member loyalty, acquisition, and retention,” Hein said.
Tip of the Hat: To Michelle Samaad at the CU Times for spotting Neighborhood’s MPower program.