In years past, auto dealers benefited from a 60- to 90-day tax season, but those days are gone due to the PATH Act, which requires that the majority of tax refunds not be processed until after Feb. 15. As a result, tax season has shrunk closer to a six- to nine-day time period. In 2017, 90% of all refunds were released in two days (Feb. 22 and 23), the largest IRS funding in history.
In 2018, it is estimated that most tax refunds will be issued on Feb. 27, making the tax-season sales window approximately Feb. 28 to March 9, depending on when refunds are received. Don’t let this “new” tax season catch you off guard — you can maximize your sales even though the “new” tax season will be shortened.
So, what exactly is the PATH Act?
The Protecting Americans Against Tax Hikes (PATH) Act was passed by Congress in 2015 and first took effect in 2016. This act delays processing of tax refunds for all low-income taxpayers that are eligible to receive the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC). This causes those taxpayers to wait until late February before seeing any refunds.
How does the PATH Act affect car loans?
Instead of the “old” tax season that ran from late January through April, the “new” tax season is a matter of days. This pushes a flood of loan requests in a shorter period and more difficulty qualifying loan candidates looking to use their tax refunds as down payments.
What can auto lenders and dealers do to make the most of this “new” tax season?
There are many steps you can take that allow you to finance as many customers as possible while limiting your risk. Here are a few you can take advantage of now:
● Engage with potential buyers now and lock in the sale with a tax refund advance. You may want to find a tax partner or tax season promoter to help capture sales before customers receive their refunds. For example, Spireon has partnered with TaxMax.com to help auto dealers and lenders provide tax refund advances to strengthen their tax season results.
● Prepare to maximize sales from now through February with appropriate inventory, staffing, marketing, and risk-mitigation devices. Preparing helps save time when the tax refunds start coming in and minimize your business’s risk when the heavy flow of deals and loan originations roll in.
● Consider using GPS technology for reference validation and risk mitigation on your auto loans so auto dealers and lenders can originate more auto loans for customers, confidently. A top-rated GPS solution made specifically for auto dealers and lenders like GoldStar will allow you to automatically validate references, set up payment reminders, and reduce your risk so you can focus on closing more deals without putting your business at risk.
While we can’t change the PATH Act’s effect on our businesses, there is plenty of opportunity for dealers and lenders to prepare and make the most of the shortened tax season. By taking these steps to prepare, you can maximize your sales despite the time crunch and help even more customers get into new vehicles. To learn more about the PATH Act and how to prepare, visit the PATH Act Resource Center.
This article was written by Reggie Ponsford.Like This Post