All right, in this video, we’re going to
have a little how-to and how to switch a customer from paying upfront or paying cash for a vehicle
to financing the vehicle on an installment loan at your dealership. So if you’re a finance manager,
or even a sales manager, or anybody at all, and you want to learn how to do that,
then stay tuned.
All right, so there you have it; you have the dreaded cash-paying, upfront paying customer
that every finance manager hates because, let’s face it, you can’t sell them anything. That is,
if you’re weak, you can’t sell them anything, but that’s a whole other
video. So you want to switch that client from paying upfront for a vehicle and convince them
to put it on an installment loan at your dealership and how are you going to do that?
Well, there’s some unethical ways. Some unethical finance managers offer to give the customer a
portion of whatever the bank is going to give them in the way of a reserve or reward for sending the
loan and then the customer just pays out the loan right away and the dealer keeps the money
and the banks hate you and that never works because over time, the bank just, you know,
gets pissed off and charges you back. So, that isn’t going to work, so how do you do it?
Well you know what? There are very real reasons, compelling reasons, why a client should not simply
just write a check for the vehicle rather than putting it on an installment loan, so let’s just
kind of go through a few, all right? So nine out of ten customers are not really
just writing a check from cash in their account for the car when they’re paying upfront. There
is the odd one that just happens to have the money lying around, and when you run into those,
you should be able to sell them something because they have lots of money just lying around, but
nine out of ten people are actually paying for the vehicle on a line of credit that’s probably tied
to their home or some other property or asset. So they’re not really paying cash; most customers,
90% that pay upfront for a vehicle, are doing it by leveraging a line of credit.
So that’s the first thing you need to do is establish that the client is in fact paying for it
on a line of credit. Once you find that out, now you have some leverage, some real good-some very
good reasons why they shouldn’t do that. I’m going to give you one you may not know. Did you know
that by the client putting that vehicle on their line of credit rather than on an installment
loan, they could be damaging or hurting their credit score? That’s right. Now,
how does that work? How is that possible? I can tell you that one factor, a very key factor,
in calculating a credit score that the credit bureau uses when calculating a consumer score
is credit utilization, and credit utilization is the amount of credit that is available to a
consumer and versus, of course, the amount, the percentage used. So, the higher the credit usage
as a percentage of the available credit, the more it drives down your credit score.
Therefore, if you have a consumer that has a line of credit against their home,
and that represents a significant amount of their available credit, and then they take a vehicle,
a large asset, a depreciating asset, by the way, and put it on that line of credit, they can put
downward pressure on their credit score actually negatively impacting their credit, all right?
So now, reason number two. Lines of credit are typically there in case stuff happens, all right,
in case of emergency. I was going to say in case shit happens, but that’s a little offensive,
so let’s just say in case of emergencies. That’s really what a line of credit is used for.
That you have this line of credit against your home, it allows you flexibility to do things
in the moment. It allows you quick access to credit. That is the very definition of a line
of credit. It is quick access to credit. So why are you tying up something that you have that is
quick access to credit because the whole point of having that is just in case you need it quickly,
with an asset, a depreciating asset, again, like a vehicle, a large purchase?
Of course, the double whammy is if you happen to be damaging your credit by using a lot of it and
putting a vehicle on your line of credit, and then all of a sudden, you need quick access to credit,
now, it’s possible you can’t get it when you need it because you’ve used your line of credit and
now, the one thing I can tell you about banks that is common knowledge that everybody knows
is they will lend everybody money that doesn’t need it, but when you need it, they’re not
going to lend it to you. That’s kind of how it works. So, the second reason, of course, being
line of credit is quick access to credit, so don’t do that.
What is another reason that you might want to use an installment loan at a car dealership rather
than putting it on your line of credit or even potentially paying cash if you happen to have all
that money lying around. Most people in that kind of demographic that can pay upfront for a vehicle
also happen to be in the older demographic, probably 45 and up.
So people that are a little on the older side more often than not are also the type that want to pay
for a vehicle upfront, put it on a line of credit, write a check, what have you.So you know what you
can get when you get an installment loan at a dealership? You can get insurance on your loan:
life, disability, whatever, but certainly life insurance you can get on your car loan.
Now, life insurance on a car loan typically is group insurance, which means that whether
you’re 18 or you’re 60, you pay the same. So if you happen to be older than the middle of that
line, say 40 or 45 years old, that means that you’re getting a bargain on the insurance. Not
only that, if you happen to be like 50, 55, maybe you have a few underlying health things going on,
then you actually truly benefit by having the ability to buy group insurance, life insurance
on your car loan without any medical, right, so actually, getting an installment loan allows you
to increase the amount of life insurance you might have in your portfolio to cover that loan without
actually having to get a medical to deal with that, so that is another benefit.
When you’re talking to your customers about the option of whether they should
be paying cash for a vehicle or financing the vehicle at your dealership on an installment
loan, the first thing you really have to do again is establish that the reality is they’re probably
paying for it on a line of credit. Explain to them why that might not be the best decision
because of the negative impact on their credit and the utilization of a line of credit that
really is designed for emergencies. And not only that, there are a few benefits that come along,
like the ability to put life insurance on a loan, which again will transition you
from somebody who’s paying cash into an installment loan and even now getting an insurance
product included in the loan, and now you’re in the money, all right. If you want to learn a
little bit more, subscribe to Zymbyo and learn. Maybe we’ll make a few extra bucks together.