MotoRefi's CEO on Bad Car Loans, Saving Money, and the Future of Used Cars

Kevin Bennett is the CEO behind MotoRefi, and he wants to save you $100 or more per month. In this video, recorded on Feb. 4, Kevin joins Brendan Mathews from Motley Fool Ventures to talk about auto finance and start-ups. Kevin explains why you're probably paying too much on your car loan and how you can save $100 or more per month. He touches on MotoRefi's history, its latest financing, the post-COVID world, and how things have changed as the company has grown up. To close out, Brendan asks how COVID-19 has affected car ownership and the future of the used car. And along the way, Fool members ask questions.

Brendan Mathews: Welcome to Motley Fool Live. I think we will maybe just start with some quick introductions. Kevin is the CEO of MotoRefi which is a specialist in helping people save money by refinancing their car loans. This is a private company and full disclosure, it is an investment of Motley Fool Ventures and I am a vice president of Motley Fool Ventures which is an affiliate of The Motley Fool. Kevin, can you give maybe just a little bit more detail on what MotoRefi does?

Kevin Bennett: Absolutely. It's great to be here. Thanks for having me on. MotoRefi is a digital auto refi platform that helps consumers improve their financial relationship with their cars. We primarily help consumers refinance their auto loans, as most consumers are actually paying above market rates based on what they get at the dealer.

Mathews: That's a great segue, Kevin. I want to just do three chapters to this discussion. One, just focused on personal finance and auto refinancing, then we'll go into your story as a venture back business, and then talk a little bit about the auto market. But let's just start on a personal finance side. Why is it the people are in sub-optimal auto loans?

Bennett: It's a great question. Most people get their auto loans at the car dealership. That's the experience that the vast majority of consumers have, and it's a vertically integrated transaction. Most consumers are spending months or weeks shopping around for their cars, predominantly, they're looking online, looking for features, looking for the right models, right vehicles, whether it's new or used, then they almost always end up at the dealership. At that dealership, they are not only signing contracts and picking up the car, but they're also getting the financing and insurance products. The experience that most people have is that they're in the last few minutes of the transaction, will go into the F&I office, and they will be wanting to drive off the lot, seeing that car, wanting the keys, really dying to get home with their new vehicle, but they're stuck with a big stack of paper, talking to someone about financing, insurance products, all these things. Lot of acronyms get thrown around. Usually check, check, check, "Can you make this payment?" "Yes." You may not even know what that interest rate is, and then you sign and drive off the lot. You know what your payment is but as I mentioned, you may not know your interest rate, you often don't know all the insurance products you have just bought. In that few minutes, that's actually where most auto dealers make all their money off you. They actually don't make money on cars. That's a little-known fact. Most people would assume that auto dealers make their money by selling cars, they don't, they make their money by selling the finance and insurance products attached to the cars.

Mathews: Then the service associated with it. But yeah, I mean, [laughs] I have been in that little room, and you are exhausted, and you're not a finance expert but they've got somebody who does it all day. A lot of people are in sub-optimal car loans. I see a lot of people are refinancing their home loans but I don't hear about it as much with auto loans. How does auto refi compare to home refi?

Bennett: You're exactly right. I think when you think about the consumer finance journey most consumers go on, they'll often finance their education, they'll finance their car, initially, they'll finance their home, they'll refinance their home. They don't often refinance their car, it's not something that's as well known, but refinancing a home is quite well known and quite standard. Fifteen to 20% of mortgages get refinanced, only 1 to 3% of auto loans get refinanced, so a very small percentage. When you think about consumer awareness, according to TransUnion's (TRU 8.17%) study, only 47% of people are even aware they can refinance their car. Most people don't even know that it's a possibility.

Mathews: Who's a good candidate to refinance their car, and how's MotoRefi changing this experience?

Bennett: Great question. Amazingly, almost everyone is a good candidate to refinance their car. Eighty percent of consumers can save a meaningful amount of money by refinancing their cars. If you own a car, the chances are, it's worth checking out, and I will say a plug for MotoRefi. Go to our website and just check the rates you qualify for. No requirements, no dings on your credit. Just find out could you save money? Could you get in a lower rate? Education is really the first step knowing the right decision for you. If the answer is no, then stick with what you got. If the answer is yes, then it's often a very smart move. We save people on average of $100 a month on their payments, which is pretty meaningful for folks. The people who get the best deal are often the super prime credit or above. If you have an 875 credit score, you may have done pretty well. But anything 850 or below, often you can save a decent bit of money.

Mathews: Kevin, I'm going to just throw in some questions from our listeners. What does it cost to refi a car loan and how does MotoRefi get paid?

Bennett: Great question. Refinancing a loan is very cheap relative to mortgage. Mortgage, the rule of thumb often is, you have to save at least a percent on your rate to cover the cost of refinancing your mortgage, which is actually quite expensive. You need thousands of dollars. Cost of using MotoRefi is under $400 in terms of that processing fee and that covers the software and the trip to the DMV. We actually take care of that for you as a customer. We want you to be able to do the transaction from your couch to make it really easy. So we take care of that heavy lifting. You don't have to go to a bank branch, you don't have to go to the DMV, we keep it simple. That is our value to the customer. Then the nice thing for us is the customer is actually not paying for all of that revenue. We get paid also by the lender for the loans we send them. We handle the relationship with the customer, we have a NPS that ranges from 80-85. Right now it's 81, quite high. We're able to deliver that level of satisfaction to our customers at white glove service, all the way through the process. Helping them through every step of the process, and at the end of the day [inaudible] with our pool of lenders we work with, primarily credit unions, community banks, trusted lenders that provide a really great value to customers.

Mathews: Kevin, can you do anything for people who have leased cars?

Bennett: That is a great question. We do not do lease buyouts today. We've had lots of requests, including from family members of mine. Something that definitely is top of mind, and will be on the road map for sure. We'll be expanding into that market down the road.

Mathews: Kevin, how does changing interest rates affect your business and potentially falling interest rates?

Bennett: It's a great question. Because mortgage, and I'll go back to the mortgage space, is an efficient market, what that means is that for mortgage refinancing, and you see the headlines in the papers, it tends to be feast or famine. A falling rate environment, everyone refinances their mortgage. In a rising rate environment, no one refinances their mortgage. Auto refinance is a bit more stable, because most people are overpaying 2 to 3% APR on their auto loans. That's the case when rates are low, it's case when rates are high, but generally it's just an inefficient market. I will say you can always save money. You can probably save a little bit more in a falling rate environment, so it is also a good time to refinance your car. We have seen awareness of auto refinance increase a good bit over the last year. Through COVID, through falling rates, through awareness of mortgage refinancing. We've seen that when we look at Google searches, up about 40% year over year, normally up 5 to 10%. We've seen a good little bump from that from consumers who are looking to save money, consumers who are aware of refinancing in general because of mortgage and the headlines that that's created. I'd say consumers getting fancy and looking for ways to save money during COVID and uncertainty. We're certainly happy to have the privilege to help people save money and improve their financial security.

Mathews: Cool. Transitioning to the ventures side of the story. I'd love to hear just the origin story of you as CEO, and then also the origin story of MotoRefi as a company.

Bennett: Absolutely. It's an interesting story for MotoRefi that we were a venture build out of QED, a fintech venture firm. QED was founded by Nigel Morris and Frank Rodman. Nigel was COO of Capital One (COF -1.95%) and co-founder of Capital One, and founded a fintech investment fund called QED. They invest in names that you may know like Credit Karma and others. They saw a real opportunity to help consumers in auto and refinance and working with credit unions and other trusted lenders. I had gotten to know them a bit and we we're chatting about the opportunity. I was excited about it. I had gone through that process you had discussed and I think most of our audience have really experienced when they've gone and bought a car and felt that it probably wasn't the best deal out there, they wished there was a better way. I was excited that we could partner up and do this together. It's been about three years or so since we've done that, and it's been really exciting. We've been incredibly excited to work with Motley Fool Ventures as well, and a number of great investors as we have built the company in the business to a nationwide business today.

Mathews: The latest piece of news that's out there widely distributed about MotoRefi is the Series A1. Does that have anything to do with steak sauce? [laughs] Can you tell us more about what is the Series A1, what does that mean to someone who's not in the entrepreneurial venture ecosystem every day?

Bennett: It's a great question. It's somewhat idiosyncratic of the venture world that rounds get named after letters, more or less, since you have your A, your B, your C, and then they've found ways to label rounds more finally between letters. You have your A, your A1, your B, I've seen A2s. It gets not terribly complicated, but a little more complicated. We ended up raising two rounds of funding last year. At the beginning of the year, we raised a Series A, it was roughly $10 million. The end of year we raised a second round, it was a Series A1 we called it, and that was an incremental $10 million. From inside investors and Moderne Ventures, which keeping the real estate theme going, Moderne Ventures invest heavily in real estate and real estate adjacent spaces and the analogy to real estate was pretty straightforward to folks and saw a lot of opportunity to work together.

Mathews: Series A is the letter grades, companies that are going public are Series G, F, that kind of thing. Definitely way beyond the initial start-up, but still early in the journey. This is a question that people ask me a lot. How does being a start-up founder compare to Shark Tank? How real is that show?

Bennett: Well, it's funny. I'm curious as to your thoughts on this. But there are different ways to mark the journey, different mile-markers as it were. One way to do it is financing rounds and we discussed that. Another way to mark the journey is not from a financing perspective, but the live perspective of the folks on the journey, the entrepreneur and the team. I think from my perspective, this is the fifth start-up I've worked on in different versions and iterations, and so I've seen this story play out a number of times. But there are the early days where you've got an idea and you're starting to prove certain pieces out and do you risk it and check a couple of boxes? But you really don't know whether you will be around or not. You hope you will, you're optimistic, you think you've got an idea it's going to work, but it's to be executed really. Then I think that's an early stage start-up. Then you get to this mid-stage which I think we're at at this point, where there are 175 people on the team. We've grown, we're nationwide, we're operating, we're saving customers millions of dollars a month. We're a mission-driven company, that's why we're here, is to help save consumers money and operating successfully and the economics work and investors respond accordingly. There's just not the same level of existential fear, it's really about continuing to execute and build on top of what is, I'd say a much more stable organization and model. That's where we are and that's not to say we're going public anytime soon, but that's just to say that we're in the middle of that journey. Every phase is fun and exciting in it's own way, but we're certainly glad to be where we are today.

Mathews: I always say Shark Tank is fun as a TV show and there's certain elements of reality to it. But I think what you said, the day-to-day operational stuff when we talk, it's not as drama filled as an up or down decision on the spot. Kevin, we've talked a ton about how you've adapted to COVID. You guys actually I think had a better 2020 than 2019, but how are you thinking about a post COVID world? How are you thinking about reopening?

Bennett: It's a great question. We're thinking about it a lot, and I think it's a journey you go on with the team. Relationships and communication are so important in life but with the folks you work with certainly in the business. We're in multiple cities, you're seeing different impacts of COVID regionally, so obviously being sensitive to the facts on the ground. We're hopeful with the vaccine and being able to see the light at the end of the tunnel. Also there's this future work question, which is to some folks, for us candidly, it's worked OK. We've continued to grow to your point, we tripled the size of the team last year. The majority of our teams never met in person. We've adapted to this fully remote world and the company's thriving, and I think we all miss each other and have a great culture and company and want to get back together in person; and we'll do so responsibly and thoughtfully. I think we don't want to do anything that puts undue risk on the business. I think we'll be thoughtful and responsible and prudent about it. I think we'll phase it in. That's really the key as people look realistically at what this looks like. It won't look like a light switch, it will look much more like a phasing in of back to work, and some people might phase-in more than others. Some people go to work five days a week in the office, some people will work from home half the time, go to the office half the time, and it will just depend. But I think we've created the culture around flexibility where we trust each other, we work really hard, we're able to get results, and so we tend to let folks work the way that works best for them.

Mathews: Yeah, cool. Zooming out but also staying on that theme of the environment, how has COVID affected car ownership?

Bennett: Across the economy, I think what we've seen and certain equity markets have pointed this out as we read the headlines, but digital adoption accelerated from COVID. As people literally locked in their homes, everything is being done by technology across [inaudible] . What that has really resulted in is one, great performance across technology, generally speaking, and as a sector. But also changes in behaviors have accelerated. We've talked about awareness of auto refinance has accelerated directly as a result of COVID, and low rates, mortgage refinance, etc. We're also seeing new models of whether it's Carvana (CVNA 2.85%) or Vroom (VRM -1.71%), used car sales have really gone way up, and used car valuations have gone up. I think we've seen a lot of trends that we expect to continue, especially when it comes to adoption. We've also seen personal finance and fintech. Even zooming in a bit further from tech generally, become very turbocharged as it were and accelerate in terms of growth, and that's true in the auto sector as well. I think this is something that is likely acceleration that will continue, adoption will continue. I think tech is effectively in a march forward as it helps make our lives more convenient in all aspects. That will probably just continue, and we've just seen a strong tailwind through COVID to accelerate that tech adoption curve.

Mathews: I think we've definitely seen that in the stock market. We've seen Carvana is up 200% from the past year, Tesla (TSLA 4.96%) is up 500%, and I think they are certainly more suited to direct digital distribution versus going into the dealership. When you think about the future of used cars, what are used cars going to look like in 10 years? I think more people are looking at sharing options, people are switching to electric vehicles, and we definitely got more software in automobiles. What are the big things that we should be looking at?

Bennett: It's a great question. I think it will be tech forward and I think it will be flexible. I think the car itself will become more and more tech forward, more and more like a computer. The value, a lot of it will be in the technology. You're seeing that with obviously Tesla and others who are leaning into this, and it will be flexible, I think in all industries but certainly in auto. Where you've had a model that is inflexible, you have to go to the dealer, you have to do it one way, you have to finance it one way, you will see more consumer choice. Technology, what it does best is delivers consumers choice, autonomy and flexibility. You will see more and more of that. One example in auto refinances, financial institutions famously have relatively short hours, 9-5. For folks who are working during the day, it is very hard to actually work in that schedule. What technology lose is time shifting, and because you can go through the process online with MotoRefi, you can go through it at 6 a.m., at 10 p.m., at 2 a.m., it all works, you don't have to call someone during those 9-5 hours. I think you'll just see more of that flexibility and that will be in the distribution of vehicles, whether it is Carvana or Vroom, or in a financing of those vehicles when it comes to solutions like MotoRefi that help consumers save money, but also introduces that level of flexibility and convenience that consumers are more and more demanding in the economy.

Mathews: Do you see peaks in terms of people either pinging your website or calling your team at off-hours, weekends? Is that a thing where people are up in the middle of the night trying to refinance their car loan?

Bennett: We get outreach at all hours of the day and night for sure. I wouldn't say there's a 4 a.m. peak or anything like that, [laughs] but I do think we have a great responsive team and as we grow the team, it just gets more responsive and flexible as well. Our goal is we meet consumers wherever they are and be there to support them whenever they need us.

Mathews: I'm going to just start firing in some questions here. If you don't know or it's time, we just open game time. Why are you not offering refi in Maryland at this time?

Bennett: That is a great question. Maryland is on the road map, we are in process there. Maryland and Pennsylvania are both in the works and will be delivered this calendar year. The reason we're not yet live there, we're live in 42 states plus DC. In those other states, there's often just a different regulatory nuance that takes a few more steps that we've not yet gone down that road but are in the process. Maryland and Pennsylvania are priorities and we will be adding them soon.

Mathews: OK. When is the company going public?

Bennett: [laughs] No plans there yet, but I would say we're really excited about the company, the size of the market, the opportunity to serve consumers. We still think it, see the company as an enduring company and community we're building and an enduring mission for sure.

Mathews: How does the default rate for MotoRefi compared to the overall rate for other loans?

Bennett: It's actually lower for our lenders. We actually see positive selection. We have actually a pretty savvy group of customers, probably not unlike your listeners. These are folks who are looking for solutions. Maybe they're optimizing their credit cards, they are optimizing their financial lives, they are on personal finance platforms like Mint or Credit Karma, where many customers will find us, and LendingTree (TREE -2.83%). They're really going down this journey and being savvy and responsible and then taking those steps. That's a positive selection in terms of customers who are making the right decisions, and so we actually see great results with our customers and our lenders love that obviously as well.

Mathews: One of the things coming out of the great financial crisis that I think we all learned was that people don't walk away from their car loans. There's a lot of talk for a long time following that, that maybe there was a bubble in car loans. Has that played out or do you still think it remains a lending safe harbor?

Bennett: It's a great question. I think there are a couple of things that are true. To your point, consumers are very incentivized to continue to pay their auto loans when they're making...

Mathews: Someone will call a truck in front of your house and pull it away from you. It's [laughs] not quite so easy to foreclose your house.

Bennett: That's certainly true, and it is often tied to your economic livelihood, your mobility.

Mathews: You need it to get to your job.

Bennett: Absolutely. That part is critical. I think one, there have been a number of articles in Wall Street Journal, NPR over the number over the last year or two, stories around how expensive cars are getting. That's what we're seeing in some of this technology, some of this that were getting more sophisticated. But the technology, it's basically the pricing of cars, the cost of cars is going up, oftentimes, financing terms are getting longer, and to try and manage that from a monthly payment perspective with the dealership. But monthly payments are growing up. I think what you're seeing is the car payment is becoming a very material part of people's financial lives. Given those trends, I think we really try and save people as much money as possible, and that's what allows us to save that $100 a month for people when they refinance.

Mathews: One of our questions from Vivien is, "What's your mission or big picture of MotoRefi?"

Bennett: It's a great question. Our mission is twofold, really to help consumers save money and improve their financial future. We talk a lot about refinancing, and I'd be remiss if I didn't also talk about the insurance products offered. Our customer will come to us and they will be paying too much in their auto loan. They also will have got often a GAP insurance or warranty at the dealer, and that product will often have been very expensive. We have access to products that are much cheaper but same coverage, same type of policy. We cannot only save the consumer money on the refinance, but also in those insurance products, and so $100 a month in savings net of fees, and incrementally there's $1,000 check, $2,000 check in the mail that comes back in the refund of that old policy they were overpaying on. You can have a new policy in your loan, financed your loan, and you're still saving $100 a month. We think about financial security, securing your financial future in personal finance, and that relationship with your car more broadly in terms of finance and insurance products. That's really our goal, is to help consumers. Is that money worth saving, that's groceries, it's gas, it's stuff for the kids, it's student loans, paying off your credit cards. It really is meaningful for our customers, and that's why we're here, it's really to help improve people financial life. That is the mission and that's what we optimize for and that's what we do.

Mathews: What data points to use in underwriting?

Bennet: This is where partnering with a number of lenders comes in. We partner with a number of lenders, we use their underwriting for lending, because they are taking the loans. But because we have a diverse group of lenders, we have a diverse credit box, and so we are generating offers from all of our lenders for customers. We're only showing them the best offer at each term. Often if you're looking at an offer at a 48-month term, or a 60-month term, or a 72-month term, those offers could be from different lenders, because we're only showing the single best offer of each term. We consider ourselves a matching marketplace, and we're only matching the consumer with the lowest price offer that's going to save them the most money. Just another example of us putting the customer first and really being mission-driven around helping maximize the savings that a customer can get around their car and their car financing.

Mathews: I think this will be the last question. Manisha asks, "How can I invest in your company now?" [laughs]

Bennett: [laughs] I appreciate the question and very humbled. We are not fund-raising at the moment, we did just close a round. But I would say we've got great investors, including Motley Fool Ventures, so talk to Brendan on cutting you in on their investment, and see what he can do.