Auto dealers aren’t budget counselors, but what if they were?

Think of the goodwill a dealer would create by helping customers to:

• Pay off their car’s loan sooner
• Build equity in their vehicles faster
• Improve their credit score – all just from buying a vehicle from them!

For a dealer who could do that, customers might just stick like glue. They’re sure to tell family, friends and social networks about the car dealer who cared enough to help them rescue their budget!

Budget rescue is a huge opportunity. According to a recent Gallup study, only one-third of consumers know how to prepare a household budget. This means most of us, even those with good-to-excellent credit, may struggle to make ends meet at month’s end. They risk late payments or missing payments, which begins a cycle of late fees, deteriorating credit, and potentially repossession.

Help consumers avoid or alleviate problems as part of the sales process and their loyalty and retention are sure to follow. While not a traditional car dealer role, helping consumers improve their financial wellbeing while selling them a vehicle is a smart way to differentiate the dealership and sow future sales.

Showing special concern like this can be a natural step for F&I. If your F&I manager were to ask every customer “How often do you get paid?” they would find most are paid every 14 days, aka “Bi-Weekly”. The next question should be, “Can I show you how our accelerated payment plan can help you budget better for your purchase, improve your credit and pay off your loan sooner?”

The mechanics of these payment strategies make budgeting for the loan easier for your customer. For example, a $500 monthly payment split into two small payments of $250 each every 14 days is easier to budget – and more affordable, psychologically and in practicality.

Proven winner made better
The accelerated payoff plan is not a new idea. Homeowners have practiced it for years to retire their mortgages earlier. Today, software-administered plans make this option a real budget-saver for many buyers. Car-shopping resource AutoBytel offers a good explanation of these plans.

For many consumers, however, doing-it-yourself may prove difficult. They either don’t have the discipline to do it themselves or they simply want the convenience of knowing it’s being taken care of for them. Additionally, many consumers find that the additional principal payments they send in are not applied to principal and they spend hours on the phone with the lenders to make it right.
Fortunately, today’s dealerships can offer their customers professionally administered and managed accelerated payoff services.

While not a budgeting service per se, professional accelerated-payment firms manage the consumer’s loan payments for them. By introducing the consumer to such a service, the dealership assures its buyers that:

• No loan payment is ever late or missed.
• No late payment fees are incurred
• Payments made consistently on time help improve credit ratings
• Accelerated payments – 26 half payments a year versus 12 monthly, means one full month’s additional payment toward principal every year
• The loan can be paid off sooner
• Vehicle equity builds up faster, so at trade time the owner has value in the vehicle, making the next purchase more affordable.

Professional, new-generation accelerated payment plan services are safe for the dealer and safe, secure and prudent for the buyer. The dealer can offer a plan best suited to the customer.

For example:

Bi-weekly – Payments are electronically withdrawn from the consumer’s checking account every two weeks, for 26 half-payments each year. This gives the customer one extra payment toward the principal balance each year and can save him or her thousands of dollars in the long term on interest.

Weekly – Payments are electronically withdrawn once a week for a total of 26 half-payments each year. Similar to biweekly, this schedule also creates one extra payment toward the principal balance each year and provides the same savings in term and interest as the biweekly plan.

Bi-monthly – Payments are withdrawn on two fixed dates in a month for 24 payments. In order to see savings in interest and term, this plan requires that the debit amount is more than a half-payment.

Custom – If a customer has unique needs, many services offer an option to tailor a plan to make it work for them.

Training is key
An F&I practitioner who doesn’t know when and how these services work can make misleading statements during the pitch. When starting such a program, be sure all involved get trained and have a clear picture of what it is they’re actually selling and presenting to the customer. They should be well trained in how to do so correctly.

Goodwill means retention
Accelerated payment options can be a useful sales and retention tool for a dealer.

Dealers who can offer a way to help their customers solve problems like budgeting and credit score redemption are not forgotten. What dealer would not want this sort of goodwill going around the dealership?

Offering accelerated payment plans to car buyers can also create new opportunities for F&I to sell its products. Thus, dealers will boost per-vehicle profit and F&I penetration. The advantage of biweekly services is that they are brought to the customer’s attention at the point in the vehicle acquisition process when the benefits can be employed to their full advantage. The savings generated by expediting the loan is often used to purchase a vehicle service contract or other product in the amount financed with little or no increase in the monthly payments. For the F&I office, this can mean $600 to $900 worth of additional product Sold.

Alternatively, the customer may choose to pay off the installment sale agreement before the last payment, which reduces the total interest charges.

These plans can help the customer build equity in their vehicle faster, repair their credit, and retire the loan sooner. The goodwill an accelerated payment plan can create between dealer and customer helps to retain customers’ loyalty and bring in new customers.