The average new-car loan term has reached an all-time record of 66 months.
Cars are getting more expensive, and car buyers are extending the terms of their loans in order to lower the monthly payments.
Longer loans often carry higher interest rates which increase the total cost of buying a car. For dealerships, it means the value of the car at pay-off is less, resulting in a lower value to sell or trade toward a new car purchase.
With analysts predicting a brisk auto sales trend to continue in 2015, auto dealerships can expect the competition for customers to intensify. One strategy for dealerships is to offer customers the option of a biweekly payment program. It’s rooted in the home mortgage sector.
Here’s how it works: Standard loans require a payment a month. Biweekly payments plans debit a customer’s monthly car payment every two weeks. A borrower ends each year having made 26 payments, which equals out to 13 monthly payments (one extra payment a year). The extra payment is applied to the principal.
The benefits to customers include shortening the term of the loan, saving money in interest and putting them in a better equity position to trade in sooner.
The customer’s convenience of budgeting for half-payments can translate to the dealership’s ability to move more product, sell more services and generate greater profit. Dealerships have been shown to sell about 57% more finance and insurance products on biweekly deals as opposed to standard retail deals.
Recent regulatory attention given to biweekly payment products may give some dealerships undue pause. The National Automobile Dealers Assn. has advised its members to be aware of the specifics of the F&I products they sell and ensure their staffs are properly trained to accurately disclose all fees and costs, and not overstate potential benefits.
Reputable biweekly loan payment processors have practices in place that promote full and accurate disclosure of their products and put customers’ best interest first.
What should a dealership consider when choosing to partner with a biweekly payment program provider?
Make sure the company is licensed, bonded and compliant with all of the regulatory issues relevant to the marketplace including state money transmission licensing, Federal FinCen registration, NACHA network operating rules and guidelines, and the Electronic Funds Transfer Act (EFTA) related to customer transactions.
Companies should provide dealership training by knowledgeable professionals.
The program should integrate with a dealership’s menu system and dealership management system.
It also helps if the company measures real-time performance metrics, such as dealership profitability and sales at both the group and individual-store level.
Robert Steenbergh is CEO and chief compliance officer for US Equity Advantage, a provider of biweekly auto-loan payment programs. His company has dealership partners, including two public auto groups, in 50 states.
