Otto, a fintech start-up that aims to enable people to tap into their vehicle’s equity to access credit, raised $ 4.5 million in a funding round.
The Dallas-based company is building a mobile platform that will essentially allow people to borrow against their vehicles at the same interest rate as standard credit cards. But unlike other cards, Otto won’t charge fees or overdraft fees, and won’t require applicants to provide their FICO credit scores. Users will be able to remotely check and guarantee their cars through Otto’s mobile platform, which is expected to launch in early 2022.
Uncommon Capital led the startup’s seed funding, which included participation from Pelion Venture Partners, 1930 Capital, Bloom VP and Spacecadet Ventures. Other investors include Mark Cuban, entrepreneur and Shark Tank investor; Leo Polovets, co-founder and general partner of Susa Ventures; Bill Clerico, co-founder and CEO of WePay; and Vivek Garipalli, co-founder and CEO of Clover Health.
Friends and former colleagues George Utkov, Jordan Miller and Daniel Ashy came up with the idea for the company after Utkov’s friend fell victim to a “predatory” title loan deal.
“Millions of people every year take out what’s called title loans – and that’s when you own your car and you’re basically going to pledge your car’s title as security for the loan,” Miller said. “These loans last 30 days. They’re 500% + APR, and they absolutely crush people.
Utkov’s friend, who had lost his job during COVID, secured a title loan against a truck that was worth between $ 15,000 and $ 20,000. Unable to reimburse him, he lost his car.
“It exposed us to this whole world of loan products for the underserved, for the unbanked,” Miller said.
The trio began working on Otto at the start of the COVID-19 pandemic. After the experience of Utkov’s friend, they realized that people, for example, with unstable incomes or who are recent immigrants are extremely limited in options when in need of money. As such, they often have to resort to payday and securities lenders, pawn shops or other non-bank credit lenders who often charge “exorbitant” fees.
With Otto, the friends / founders want to give people another option that will not make their financial situation worse, but rather a better one. The interest rate it charges will vary, but the upper limit is 24%, the company said.
Otto chose the asset class because vehicles are often the most common and important asset owned by so many financially troubled and underbanked people.
Through the company’s mobile app, users will be able to apply for and get pre-approved “in minutes” for standard interest credit cards, which are approximately 96% cheaper than loans typically available to that user. . The user is then guided through a step-by-step process of remotely validating their information with the material provided by the company and activating their new Otto credit card.
Consumers can use their credit cards to pay for in-store and online purchases, build credit, and earn rewards. Part of the goal is to help users build credit so they can access even more affordable credit products. When consumers use Otto, their repayment history will be reported to the three major credit bureaus.
Like all major credit card issuers, Otto will make money in two ways: through interchange fees and interest.
“We want to provide financial mobility to those who need it most, regardless of their credit history, and help them move forward in their lives by giving them credit options that they might not otherwise have access to. “said Utkov.
In addition to helping people build credit, the Otto team will also track a user’s financial health and tell them things like what they’re spending their money on, and prepare for certain expenses based on their history. previous billing.
“In reality, what we’re creating is a system that’s 95% cheaper than the loan products these people use every day,” Miller said. “We feel that by building this and launching it, we have the power to fundamentally change the lives of millions of people. “
So what if a user misses a payment? Otto says he has a comprehensive program that helps users get back on track with missed payments. It also says its minimum monthly payments are the same as standard credit cards, about 2-3% of an outstanding balance.
“The repayment plans are tailored to meet the unique needs of the user,” the company said. And users can trade in their vehicle through the platform for another lower value car
The executives added, “Otto will not repossess a vehicle unless all other options (such as the reimbursement plan, vehicle exchange, etc.) are exhausted.”
Part of their plan to get their word out is to tap into the resources of their investors. For example, Mark Cuban is already helping Otto forge local partnerships with businesses offering adjacent services such as financial literacy promotion and credit repair that are already raising awareness in communities, Utkov noted.
“We think it’s very important to build trust from the bottom up and that there is an edge to building at the community level,” Miller said.
By e-mail, Cuban said he invested in Otto simply because he liked “the idea of helping people use the equity in their cars”.
“I think Otto is firmly committed to helping those who are underbanked and need financial support rather than extracting every dollar they can,” he added.
Tikhon Bernstam, managing partner of senior investor Uncommon Capital, said his company was inspired by Otto’s vision to offer a new kind of asset-backed loan for the underbanked.
“If you are unbanked or underbanked, you currently do not have access to credit at the price at which Otto will provide it,” Bernstam wrote via email. “Your alternatives are traditional payday loans at predatory interest rates or traditional title loans at predatory interest rates. Otto is changing that.
Story has been updated after publication with additional information from the company