As proud as a magna cum laude graduate of an Ivy League school, Donald Gruver of Perry brandished a certificate showing his progress in repairing his credit last week as he signed papers reducing the interest rate on his car loan to 7.75 percent from 25 percent.

Gruver is one of the first success stories for USAuto Acceptance Inc., a Des Moines-based company that makes high-interest car loans, but offers strategies to help clients eventually qualify for lower-cost, more conventional financing and thus escape the trap of “predatory” lenders.     In Gruver’s case, Wells Fargo Bank Iowa picked up USAuto Acceptance’s loan after he completed a financial literacy program developed by the non-profit Institute for Social and Economic Development. He also opened a checking account, received a debit card and obtained a secured credit card – the latter a test of the financial literacy skills he had learned under the ISED’s tutelage. After a year of responsible use, Gruver can trade it in for an unsecured credit card.

Gruver said securing bank financing is a big step on the way back from a life that spiraled out of control due to drug use and landed him in prison. When he was released, he was staring at a mountain of credit card debt accrued in the last months of his marriage. He needed transportation to and from his job as an electrician in Des Moines, but his credit rating was so badly bruised he looked for a vehicle at Des Moines Auto Sales, 2102 S.E. 14th St., one of USAuto Acceptance’s business partners.

“This guy has come back from the dead,” said Tim Neugent, one of the founders of USAuto Acceptance.

The social component was a logical extension of the loan services offered by the loan company, founded last fall by Neugent, Kevin Anthofer, Rick Tibbitts, Jeff Miles and Steve Smith, a silent partner. Neugent, a director ofr the company, said he and his partners saw not only opportunity in the sub-prime lending market, but also a means to offer clients a way out of debt.

“It became very clear – we had only been in business for a month – that we had to help these people,” Neugent said. “Why not approach business holistically? Whatever you give, you get back tenfold. By providing some education, my chances of getting paid back increase dramatically.”

Neugent said about 70 percent of used-car buyers have such low Beacon scores – a credit score creditors look at when gauging a customer’s creditworthiness that is determined by negative entries such as late payments and positive entries such as timely payments – that they can’t get financing at car dealerships or traditional financial institutions. That forces them to patronize “rock lots” or “buy here, pay here” dealerships, where a 1994 Ford Escort with 160,000 miles might sell for $10,000 with an interest rate of around 34 percent, he said.

“They’re desperate, and desperate people make desperate decisions,” Neugent said. “The car gets repoed, and their credit rating goes down even further.   “We thought there was a better way to do this and still make money.”

“Getting dealers is not difficult,” Neugent said. “Getting dealers to sell cars under our circumstances is.”

That’s because USAuto Acceptance places rigid demands on its dealership partners. For example, loans won’t be made for vehicles that are older than five years or are priced above National Automobile Dealers Association appraisal guide prices. The dealership must offer a 12-month or 12,000-mile warranty and provide a 36-point inspection.

Demands are made on the customer as well. A minimum down payment of $1,000 is required, giving the buyer immediate equity in the vehicle. A debt ratio is calculated to determine how much financing the buyer qualifies for because financing a vehicle the customer can’t afford “does more harm than good,” Neugent said.

Customers are required to accept a weekly repayment schedule. “For them, paying weekly is behavior modification,” he said.

The company also partners with Irwin Motors in Des Moines and a pair of dealerships in Fort Dodge. It’s in the process of inking deals to provide the same service to nine dealerships in Oklahoma and Texas. Established in September, USAuto Acceptance so far has written $3 billion in loans and has a delinquency rate of only 1.5 percent, Neugent said.