Instead of longer terms to reduce payments for consumers, there is another option to try.
You can reduce their term on their contracts by as much as 21 percent using the irregular payment.
You may ask, what is an irregular payment? The irregular payment is a balloon payment scheduled in the middle of the contract, which coincides with tax season, helping both parties.
It is Reg Z compliant. The payments are in the contract/amortization schedule and these payments accrue interest.
Here is an example of how it works. If a customer is getting a $6,000 refund, and they buy a car in June, they may have $100 weekly payments but their payment for March 5, 2024, will be $1,400. After that payment, their installments return to $100 per week.
Implementing this can reduce the term of the contract by up to 21 percent. Imagine reducing a 50-month term to 40 months. It is a gamechanger, according to Bill Neylan, President/CEO of Tax Refund Services. The dealer wins and the customer wins.
In today’s environment, car dealers have to deal with rising interest rates, inflation in their business, rising cost of cars and rising cost of labor. A result is dealers are selling cars are record prices.
On the consumer side, they are facing the same issues. With rising interest rates, rising rents, rising food prices, rising cost of utilities and inflation in their day to day lives, consumers can not afford to put down a larger down payment, and they can’t afford much more of a higher car payment.
The answer to these problems for both the dealer and the consumer was to extend the term of the loan. Some dealers are putting consumers into a car that is 10 years old with 150,000 miles with a car loan term length of 60 months. Will the car last another 5 years for the consumer to even pay on? Likely it will not and there goes an opportunity to collect on it.
Dealers are turning to the irregular payment to solve the problems of both the consumer and the dealer. Reduce that 60-month term to 48 months, or 50-month term to 40 months.
The program is easy to implement. The only thing a dealer needs is to have a tax season partner that is familiar with the car business. The tax season partner will estimate a customer’s future tax refund, will provide guidance on how much the irregular payment should be for each customer and most importantly, verify that there are no garnishments against the refund such as delinquent student loan or back child support.
Join Neylan, Mike Downey, VP of Sales at Automaster Systems, Bill Elizondo, NIADA 20 Group Senior Moderator and Bob Rainey, owner of Rainey Used Cars Inc., at the NIADA Accelerate 2023 Convention and Expo during the session at 4:15 p.m. Wednesday, June 21, “Reduce Your Term By Up to 21 Percent Using Irregular Payment” to learn how to collect more money faster and put the customer into a car loan that makes sense.
Register for NIADA Accelerate 2023 at niada.com/convention.