This March will mark one year since Bank of Montreal (BMO) raised rates on longer-term loans, and Head of Retail Lending Raymond O’Kane has no plans to temper his message in 2015, despite some lost business.
“My plan going forward is to become more aggressive and more vocal, I’m not backing off at all,” O’Kane told Auto Finance News. “It’s not good for the industry, and it’s certainly not good for the consumer.” While O’Kane isn’t trying to deter dealers from selling cars based on monthly payments, he is advocating that dealers determine if consumers can afford slightly higher monthly payments and lay out the benefits of shorter-term loans.
“You’ll save yourself a couple thousand dollars in interest, you will have a car that doesn’t have negative equity, and you’ll return to the market faster,” O’Kane said. “So I’m sort of preaching that, and I’m starting to find out that other F&I [managers] are agreeing to jump on the bandwagon.”
Last year, BMO raised rates 25 basis points on auto loans with terms of 84 months, and increased rates 50 basis points for loans 85 months or longer.
“Longer term loans have higher risk, and no matter how good we are at managing risk and making credit decisions, none of us can predict [vehicle values in] seven or eight years. So a longer term loan is riskier, so we should be compensated for that risk,” O’Kane said. “It’s steady as she goes, and if I had to increase rates again, if I could get away with only increasing them on the longer term [loans], I would.”
