October 2012, Auto Dealer Today - WebXclusive
It is easy to sell more cars in the buy here pay here industry. All you have to do is say, “Yes.” The challenging parts are knowing which customers to say “yes” to and how to collect the balance of the loan.
In order to make that decision, there are 10 key characteristics that are important to remember about the typical BHPH customer:
1. Ninety-five percent of all people are good people. Most are hard-working individuals who have just fallen on hard times. They have every desire to make timely payments; however, bad things can happen even to good people. The other five percent have no intention of paying you for the vehicle and will lie to you and deceive you to get away with your vehicle.
2. Your customers are not good money managers; they live paycheck to paycheck. Saving a portion of each paycheck to make monthly payments is not something they do well. They often have to make decisions on which bills get paid from each paycheck and which ones get put off until the next. They tend to pay the bills that they feel are more important first.
3. Your customers will not pay if the car does not run. Your customers need dependable transportation in order to earn a paycheck. If they cannot get to work, they will not be able, nor willing, to make their payments.
4. Your customers do not have savings set aside for emergencies. Some of your customers don’t have checking accounts, and even fewer have savings accounts. When major, unforeseen expenses arise, your customers won’t have enough money to pay all of their bills. Therefore, the customer’s problems are your problems.
5. Your customers will accept more financial responsibility than they can afford. They need transportation and will often agree to whatever payment and terms it takes to get a vehicle.
6. Your customers have been trained to lie and deceive to obtain financing. Most have been turned down repeatedly for financing and have been told that they need more job time, more time in the area, etc., to qualify for a loan. To avoid further embarrassment, they will expand job and residence times, overstate income and not mention past-due bills.
7. Your customers can generally afford between $70 and $90 weekly for a car payment. That equates to approximately a $300 to $400 monthly payment. The payment amount is a crucial figure in each loan being collected successfully. Too low a payment and the loan will run longer than the car. Longer terms also increase the chances of an adverse occurrence in your customers’ lives which may affect their ability to pay. Too high a payment increases the odds that you will have collection problems when the customer’s budget gets tight.
8. Your customers will not pay on time unless required to do so. If allowed to pay late, they will. How the first delinquent payment is handled sets the stage for how the rest of the loan will be paid.
9. Your customers will follow almost any process if they trust you. The better the personal relationship you have with your customer, the more successful you will be in the collection of the account.
10. Your customers often cannot pay on time. Delinquency and repossessions will happen. It is a fact of life at a BHPH dealership.
Because of these traits exhibited by the majority of BHPH customers, it is critical to be prepared to assist them by structuring your business to maximize their ability to successfully complete repayment of their loans. At the time of the sale, you will often be required to create imaginative and innovative deal structures to compensate for the customer’s needs and circumstances. Because they usually are unable to save enough money to make a significant down payment, you must be prepared to assist them with creative means such as special payments.
Since they have not demonstrated the ability to make timely payments on their credit obligations, we must assume some of the responsibility by structuring the loan to make it easier for them to pay on time. The use of payday payments is one of the ways established as a means of assisting the customers in maintaining on-time payments. The customers have established a record of their inability to make monthly payments in the past. It would be unrealistic to expect them to be able to maintain a monthly payment schedule with you. It will be critical to your success in BHPH to remember these 10 characteristics and do your best to structure your loans to help your customers succeed, not set them up to fail.
Vol. 9, Issue 7