ALEXANDRIA, Va. — A new program from Pentagon FCU aims to cut members' monthly payments down to size without the added hassle of going through the full refi process — and making some extra money for the CU, too.
The $18 billion credit union recently launched Rate Reset, a self-service program that allows members to extend their current car loans by up to 24 months. When the member chooses a term, the rate resets to whatever rate PenFed is currently offering for that same term, and lowers the monthly payment for the duration of the loan.
There are, of course, some stipulations. The new extension can't take the full loan term beyond 72 months, and members must have at least a 680 credit score or better to participate. Outside auto loans are also ineligible.
The catch is that by going through the program, the interest rate likely will go up. If a member's current rate on the loan is equal to what PenFed is currently charging, the rate will increase.
Jim Kingsley, SVP of regional service center operations at PenFed, told CU Journal that despite the potential for an increased rate, the program empowers members by allowing them to reset their loan and avoid the cost and hassle of future refinancing.
"Borrowers benefit by being in control of their loan terms and rates, while financial institutions benefit by completely automating the loan retention process," he said.
Kingsley added that there are benefits for both PenFed and the membership in that associated back-office costs of refinancing are eliminated, while the program helps keep up member satisfaction and loan retention.
"The real beauty of it," he emphasized, "is that there's no real credit check. You don't have to apply. If your loan is in good standing, and you've had it for 12 months, and you meet our minimum criteria, you're eligible."
While some members are seeing payment decreases of $40 or $50 per month, others have seen a drop of $100 or more, he said.
According to Kingsley, "Initial December 2014 results reflect that our members have been extending their loans for an average of 19 months. The average increase in interest rate is 108 basis points."
Check the Speedometer
Right now the credit union is promoting the product by emailing members with eligible loans and directing them to a landing page that explains the program. Members with eligible loans also see banner ads in their online banking alerting them to Rate Reset.
Once borrowers begin the process, the site has a speedometer widget that members can play with to determine how their payment would be affected by extending the term by six, 12 or 24 months.
Most members play with the speedometer for a while and test out various terms and payment options, which can be as short or fast a process as the member wants to make it, said Kingsley, but the entire process can be completed in just a few minutes.
PenFed is "still learning how to actually market it a little bit," confessed Kingsley. But the response the CU has seen so far "has been very positive." When the CU first emailed members it was getting as many as 40 borrowers per day taking advantage of it. That number has slowed somewhat, said Kingsley, but "just having it on the person's profile when they sign on, we get eight to 10 per day that way."
Kingsley said that there aren't currently any long-term goals associated with the program — those are still being developed — but he expects that it will be an attractive option to members for some time.