Outsourcing Financial Risks via Auto Loans

One of the primary goals of my venture is to provide a much cheaper transportation alternative to those citizens of greater Lowell without access to a car. Currently, the best way to get around without a car is to use a cab service which is prohibitively expensive. There are several Lowell based taxi companies and some even offer 24 hour per day service, but relatively low utilization and the dangers of running cabs at night significantly increases prices. There are few opportunities to pick up passengers outside of the city, making travel to nearby towns exceedingly expensive.

For example, a 20 mile trip to nearby Marlborough, MA where a number of factories are located would cost over $100. Even if Lowell residents travelling 20 miles outside of a city were to car pool, they would still spend at least $40 per day travelling to and from work in a shared cab. If they were travelling alone, the cab to get to and from work would cost over $200. A worker would need to be making $25 per hour over an 8 hour workday after taxes just to break even on the cab ride to and from work. That level of income is unreasonably high.

One challenge is that target customers will also probably lack the initial capital to but the car outright. There are several credit unions located in Lowell such as NMTW Community Credit Union and Jeanne D’Arc which could be valuable as financial collaborators to get customers used auto loans. Both credit unions offer loans up to 6 years for the full book value of a car. Assuming a 5 year loan on a $3,500 car with 10 percent interest, this could be relatively affordable. A loan of this nature would cost roughly $90 per month, which is significantly cheaper than using cab services. A monthly payment is about the cost of single day’s worth of commuting in a cab for someone travelling 20 miles each way.

Additionally, partnering with a credit union will be a key component of helping customers get back on their feet. Regular loan payment could drastically increase a person’s credit rating. Along with steady employment, even a bankrupt client could conceivably develop the financial stability and resources to look at purchasing a home within that same 5 year time span. The goal of provide transportation will also augment their long term financial stability. I still need to determine the level of financial counseling that will be offered, which is something that may also be best left outsourced to a credit union. Ideally, a credit union could be used to manage my venture’s banking services as well, helping establish a strong relationship that will benefit all parties. The loan system will ensure that my venture is paid immediately and will shift repayment risks to the credit union.