With the ever-growing threat of a decrease, if not the total elimination of reserve, dealers are going to have to find ways to replace that revenue. The easiest method is to increase the number of F&I products that they sell per deal. A way to accomplish this is by offering a biweekly payment service to their customers. The average deal structured with biweekly payments contains 57% more F&I product sales than a traditional finance deal. In most cases, this results in an overall PVR increase of $115 dollars. That’s overall – as in every finance deal that you sell.
One dealership that’s benefited greatly from this strategy is Copeland Toyota. The dealership currently sells 1.5 more products per vehicle and makes an additional $1,500 Per Retail Unit (PRU) with the service. Based in Brockton, Massachusetts, Copeland Toyota has been family-owned and operated since 1970. The dealership’s primary focus has always been the satisfaction of its customers, and for the last nine years, Copeland Toyota has been recognized for that commitment with the Toyota President's Award, a prestigious award presented to dealerships that excel in customer service.
According to dealer principal, Todd Copeland, biweekly payment services benefit both the customer and the dealership, “It is all about loyalty and customer retention. It helps us maintain our core focus of making happy customers because they pay off the loan faster and they are in a better equity position when they come back.”
Copeland added, “It also allows the customer to afford more products. We have improved our customer retention while also making gross.” Currently this service adds $1,500 dollars to the dealership’s bottom line on each deal.
The dealership offers it as an option to 100% of customers 100% of the time, “I want to offer customers something that improves their situation while being completely forthright and very transparent in the deal. Our goal is to keep bringing our customers back and to sell them multiple vehicles, not just one,” Copeland said.
Copeland believes that some of the biggest advantages to this type of payment plan are the ease and accuracy of automated direct payments, and that it speeds up the loan payoff. “It facilitates the finance process and the customer leaves the office with a payment they like. Most are accustomed to being paid every other week, so this matches well,” stated Copeland.
With a biweekly payment, customers pay every other week. Because a year has 52 weeks, paying every other week means 26 biweekly payments or the equivalent of 13 monthly payments in a year. The extra payments are applied to the loan principal, so the loan can be paid off faster. That reduces the amount of interest paid over the life of the loan, potentially enabling customers to buy additional F&I products, such as extended service contracts.
While the benefits to the dealership can be huge, before signing with any biweekly service provider, be sure to do your due diligence. The first item on your checklist should be to determine that the company is licensed and bonded to do business in your state. Biweekly services are deemed “money transmitters” under state and federal law and are required to have strict anti-money laundering protocols. Not adhering to these protocols can have serious ramifications to dealers and their customers.
If well managed, the flexibility of these biweekly payment plans allow the F&I manager to satisfy the needs of each sales situation. They may offer it as an option for the customer to automate their payments and benefit with early loan payoff; as a way to reduce the monthly payment for the customer; or so the customer can afford more product and keep the payment and term from increasing with the increased loan amount. The advantages to the customer are term reduction; accelerated equity; reduction in vehicle wear and tear and mileage as a result of earlier trade-in potential; convenient automated drafting for easy payment; and the ability to benefit from significant interest saved and total debt reduction.
Most dealers are not including biweekly payment options in F&I product indexes. Instead, they are being used as another payment option for budget-conscious customers who balk at having their loan terms stretched to meet their payment requirement.
If you have a customer who is interested in a vehicle service contract but doesn’t want his payment or term to exceed $500 dollars or 60 months, the F&I manager can set the VSC term at 63 months and sign the customer up for the biweekly option. His payment won’t exceed that $500 cap, and the customer will pay off his loan in 58 months.
The dealer gets to sell something additional, the customer gets something that benefits them, and it still fits in their monthly budget.
If your F&I manager were to ask every customer “How often do you get paid?” they would find most are paid every 14 days, aka “biweekly”. The next question should be, “Can I show you how our accelerated payment plan can help you budget better for your purchase, improve your credit and pay off your loan sooner?”
The mechanics of these payment strategies make budgeting for the loan easier for your customer. For example, a $500 monthly payment split into two small payments of $250 each, every 14 days is easier to budget – and more affordable, psychologically and in practicality.
This payoff strategy is not a new idea. Homeowners have practiced it for years to retire their mortgages earlier. Today, software-administered plans make this option a real budget-saver for many buyers.
Professional, new-generation accelerated payment plan services are safe for the dealer and safe, secure and prudent for the buyer. The dealer can offer a plan best suited to the customer.For example: Biweekly – Payments are electronically withdrawn from the consumer’s checking account every two weeks, for 26 half-debits each year. This gives the customer one extra payment toward the principal balance each year and can save him or her thousands of dollars in the long term on interest. Weekly – Payments are electronically withdrawn once a week for a total of 52 weekly debits equaling the same total of 26 half-debits each year. Similar to biweekly, this schedule also creates one extra payment toward the principal balance each year and provides the same savings in term and interest as the biweekly plan. Bimonthly – Payments are withdrawn on two fixed dates in a month for 24 debits. In order to see savings in interest and term, this plan requires that the debit amount is more than a half-payment. Monthly – If a customer has unique needs or serves in the armed forces, monthly may be their best option. This plan requires that the debit amount is more than the required payment.
In summary, these plans are a win-win for BOTH the customer and the dealer – they can help the customer build equity in their vehicle faster, repair their credit, and retire the loan sooner. And the goodwill a biweekly payment plan can create between dealer and customer helps to retain customers’ loyalty and bring in new customers.
And let’s not forget that the average deal structured with biweekly payments contains 57% more F&I product sales than a traditional finance deal. In most cases, this results in an overall PVR increase of $115. With the looming threat of the decrease or total elimination of reserve, biweekly payment services are well worth looking at as a way to replace that revenue.