Managing Mixed Messages

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These days, there are a lot of mixed financial messages.

A 2017 report from the Board of Governors of the Federal  Reserve System stated that 40%  of  U.S.  adults struggled to pay a $400 emergency expense, like a vehicle repair. In  March 2018,  the  Federal Reserve raised interest rates for the sixth time since the 2008 financial crisis, and it is expected they will raise them two more times this year. According to Experian, the average auto loan term increased to 69.03 months for new vehicles and 64.23 months for used vehicles in  Q1  2018.  Yet, in a recent third-party research conducted by EFG across  1,000  consumers, 72% said they are somewhat to very confident in their current financial security and unemployment remains at notable low levels.

So, what is a lender in the automotive space to make of this situation? EFG recommends building some protection around your auto loan portfolio that will protect you from the economic whipsaw.

One form of protection is a loan insulation program that allows you to diversify and expand while limiting risk. What happens when that $400 unexpected expense hits a customer with a traditional loan? If the customer is unable to manage the expense, the loan quickly becomes delinquent. Additional late fees lead to collection costs, and recovery fees breed repossession costs. Soon, legal fees, storage fees, and auction fees make this loan extremely expensive.

But what if that loan was protected by a program like WALKAWAY®, a one-of-a-kind program that allows your customers to return their vehicles and walk away from negative equity without affecting their credit? A six-month complimentary waiver is provided to every customer, on all eligible loans, covering negative equity up to $7,500. WALKAWAY covers the following circumstances:

  • Involuntary unemployment
  • Physical disability
  • Loss of driver’s license due to medical impairment
  • International employment transfer
  • Self-employed personal bankruptcy
  • Accidental death

This type of protection positively impacts your ability to form new dealer relationships based on a very unique program. This type of protection on your auto loans costs dealers nothing but generates dealer profit through product upsells. Costs of delinquency are greatly reduced and the program returns the vehicle to the dealership. The customer enjoys freedom from debt with no adverse impact on their credit and the unit does not lose value.

Providing this type of loan protection enables your dealers the ability to offer this customer differentiation without the requirement of lot loading. Customers purchasing vehicles with this type of product also perceive their purchase to have greater value and recognize their dealers are invested in their well-being.

Whether you choose to implement this level of protection or simply reassess your loan portfolio for risk, the key is guarded against the mixed messages that can make the sector unstable. While there will always be financial uncertainty, there is still good money to be made in the auto loan sector.

Administrators, such as EFG Companies, can bring you up-to-date on the latest F&I products, methods of building strong dealer relationships, and methods for implementing sound compliance systems. Fortify your business with EFG.

Contact us today to learn how our solutions provide the greatest return to you and your dealership partners.

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