Alicia Adamczyk

For high-earning borrowers with prime credit, there&#8217;s no shortage of lenders willing to offer easy loans or credit cards that come with perks like cash back and travel rewards. For everyone else, lending options can be limited—and often predatory.<div class="paywall-selector"></div><div class="paywall">



That&#8217;s why the <a href="https://fortune.com/2024/05/16/fintech-yendo-has-raised-150-million-in-debt-and-15-million-in-equity/">fintech startup Yendo</a> is trying to make borrowing more accessible by offering loans secured by many Americans&#8217; most valuable asset: their cars. The product comes at a time when asset-backed cards are growing in popularity amid an economic environment marked by high inflation, rising interest rates, and <a href="https://www.frbsf.org/research-and-insights/publications/economic-letter/2024/05/economic-effects-of-tighter-lending-by-banks/">tightened institutional lending</a>.



Yendo is the first vehicle-secured credit card, says Jordan Miller, the company&#8217;s CEO and cofounder. It is aimed at subprime customers—those with credit scores that fall below a certain threshold, which amounts to around <a href="https://www.experian.com/blogs/ask-experian/research/subprime-study/">30% of U.S. adults</a>—who may not qualify for another type of credit card or non-predatory loan. Rather than taking out a loan with a sky-high interest rate, Yendo customers can get a fixed-rate credit card backed by the account holder&#8217;s car. The first cards were distributed in August 2022, and Yendo grew its member base by four times in 2024, Miller says; it now serves tens of thousands of customers.



Using vehicles as collateral is nothing new; car title loans, in which the person seeking a loan gives his car title to the lender in exchange for the money, abound. But these short-term loans can come with hefty fees and astronomical annual percentage rates, or APRs, <a href="https://consumer.ftc.gov/articles/what-know-about-payday-and-car-title-loans">amounting to 300%</a> or higher. Those who can&#8217;t pay off the loan at the end of the term—which is typically around a month or less—can be rolled into a new loan term, with additional fees and interest accrued, leading to perpetual debt cycles. The borrower could also lose his car.



Another alternative to a title loan is a payday loan, and those aren&#8217;t better options for many borrowers. About&nbsp;<a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-payday-borrowers-continue-to-pay-significant-rollover-fees-despite-state-level-protections-and-payment-plans/">12 million borrowers</a> take out these loans each year, according to the Consumer Financial Protection Bureau (CFPB), and <a href="https://www.consumerfinance.gov/about-us/newsroom/cfpb-finds-four-out-of-five-payday-loans-are-rolled-over-or-renewed/">around 80% are rolled over</a> or renewed, resulting in paying hundreds or thousands of dollars in fees and interest. The <a href="https://www.consumerfinance.gov/ask-cfpb/what-is-a-payday-loan-en-1567/">APR is typically just below 400%</a>, according to the CFPB, though in some states it<a href="https://www.responsiblelending.org/research-publication/red-alert-rates-annual-percentage-rates-400-single-payment-payday-loans-united"> can surpass 600%</a>, depending on <a href="https://www.ncsl.org/financial-services/payday-lending-state-statutes">state usury laws</a>.



The people who get these loans typically do so as a last resort; they don&#8217;t have access to the money or credit they need otherwise. In this context, Yendo is positioning itself as a solution to the problems of credit access and the cost of access for lower- and middle-income Americans, or what Miller calls &#8220;equity of opportunity.&#8221; This audience is &#8220;underserved in all aspects of banking,&#8221; he says. But he and his cofounders believe that the credit models that are shutting out so many Americans are outdated.



&#8220;The unfortunate reality in America is that everybody borrows. If you can&#8217;t access credit at a prime rate, you&#8217;re turning to payday and title loans, and you never get out of that,&#8221; says Miller. &#8220;The interest can take up half of people’s paychecks, and it’s absolutely horrendous.&#8221;



Here&#8217;s how Yendo works: Customers apply to Yendo as they would a normal credit card, adding information on their vehicles. If approved, a lien is added to the title, and the customer gets a credit card with a limit from $450 to $10,000.



If the customer has an auto loan on her car already, she will need to refinance through Yendo or one of its partners, and then the customer receives the credit card. Every month the auto loan is paid, the value is added to the customer&#8217;s credit limit.



The credit limit each customer receives is based on a number of factors, like the car&#8217;s make and model, mileage, and so on. Of course, the customer&#8217;s credit history is also taken into consideration, as is her income and expenses, and vehicle equity.



Credit card interest rates, which <a href="https://www.lendingtree.com/credit-cards/study/average-credit-card-interest-rate-in-america/">currently average 24.43%</a> in the U.S., can also lead to a debt pile-on. Of course, borrowers can avoid that by paying off their balance each month. Likewise, Yendo charges no interest if the credit balance is paid in full and on time each month. Otherwise, the APR is fixed at 29.88%, and there is an annual $40 fee. Once the balance is $0, the customer can call and close the account; Yendo removes the lien and releases the title to her.



<h2 class="wp-block-heading">Proceed with caution</h2>



Potential customers should approach asset-secured credit cards with caution, says Matt Schulz, chief credit analyst at LendingTree. Schulz is a fan of cash-secure cards, which require a cash deposit when opening the account, which acts as collateral. The credit limit is typically equal to the amount of that security deposit. But asset-backed cards aren&#8217;t exactly the same: It is one thing to lose a $200 security deposit if things go awry, Schulz says, and &#8220;something else entirely&#8221; to potentially lose your car.



&#8220;One of the biggest benefits of a regular secured card is that it limits the risk for the cardholder, but that&#8217;s not necessarily the case with an asset-secured card,&#8221; says Schulz. &#8220;As with most financial tools, these cards can be useful when used wisely…but for the most part, I&#8217;d say it&#8217;d be best to look for other options.&#8221;



Of course, those other options are hard to come by for subprime borrowers, who typically have a FICO credit score in the 580 to 619 range; prime and super-prime are typically 660 and above, though this can vary by lender.



For his part, Miller says the company makes it as hard as possible for a customer unable to make payments to actually lose her car. The minimum payment is 1% of the outstanding balance plus interest and fees, or $50, whichever is greater. Yendo provides hardship programs as well as payment-assistance tools; if the cardholder goes above their credit limit, the card is blocked. If Yendo cannot reach the customer over an extended period of time, it will auction off the vehicle.



Despite the reassurances, it&#8217;s a risky proposition, meaning consumers should apply only if they are certain they won&#8217;t default.



According to Miller, demand has been enormous since the company launched—so much so, the company saw more applications in the first month than he and his cofounders thought they&#8217;d have the whole first year. That made them step back and ensure they were doing everything &#8220;right&#8221;—for themselves and their customers.



Though the company tries to be &#8220;conservative&#8221; with whom it approves for a card, Miller says his goal is to &#8220;stamp out title lending and payday lending.&#8221; Eventually, he hopes the company will also be able to provide products like checking and savings accounts.



&#8220;The size of the U.S. population that is credit strapped is so much bigger than people realize. It is mind-blowing,&#8221; says Miller. &#8220;We’re trying to solve this.&#8221;</div>

"The size of the U.S. population that is credit strapped is so much bigger than people realize. We’re trying to solve this."

Fintech Yendo aims to 'stamp out' payday lending with vehicle-backed credit card

Woman sitting in the driver's seat of a car

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