Auto Finance Tips

From: Edmunds.com

Making sure to finance a vehicle properly will greatly reduce the cost of your next new or used car. "Auto Financing" is a general term meaning how you pay for the vehicle. In most cases, cars are financed by taking out an auto loan to buy or lease the car. This involves getting a credit check. By checking your credit history first, and answering all the tough car finance questions up front, you will be more prepared to handle issues at the dealership.

In the articles on these pages we will not only look at the general topic of car finance but we will consider the related topics of credit history, car loan refinancing, auto insurance and all issues pertaining to special car finance considerations. Although most people don't like to think about the subject of auto financing (instead they like to focus on that shiny new car) it is actually the most important part of car buying. While your credit will be checked by the salesman, often before negotiations begin, this is not the only way you can go to get your new car. You do not have to throw yourself at the mercy of the dealership even for special car finance situations. Being prepared before you get to the dealership will mean that you can take charge of your credit and get the new car loan that serves you best.

Keep this in mind: when you negotiate with the salesman for the most favorable auto loan, nothing is permanent until you have it in writing. The sales contract is prepared once negotiations seem to be over. This is handled in the finance and insurance office (the so-called "F&I Room"). It is here that the deal is made or lost. By reading these articles on new and used car financing you will be better prepared to get the best auto loan possible. And who knows? With the money you will be saving, maybe you can move up to that more expensive new car you've been eyeing.

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Virginia Credit Repair Laws
Because of my bad credit, I recently contacted a credit repair company. They claim that, for a fee, they can clean up my entire credit record. Is that true and, if so, how can they do it?
In today's society, where credit cards have become as commonplace as cash, credit purchases have become more and more popular. This means that a greater number of consumers are being plagued with credit problems and bad credit histories. With this surge of bad credit comes the credit repair companies, promising to undo the damage the borrowers have done.
These credit services businesses often make promises to the consumer that they can clean up or repair the consumer's bad credit record for a fee. What these companies do not tell the consumer is that only outdated or incorrect items may be deleted from his/her credit history. The fact is, consumers can do that themselves. They will also promise to obtain credit cards or other extensions of credit for those with blemished credit histories, or with no credit history at all.
Another problem associated with some credit repair companies is the fact that they are transient, operating out of temporary offices or through post office boxes. Many charge the consumer in advance for their services. When the consumer realizes that little or nothing has been done to fix the consumer's credit, the company has often closed or left town, leaving no trace.
The Virginia Credit Services Businesses Act requires credit service companies to register and post a bond with the State Division of Consumer Affairs (DCA). This allows DCA to identify those credit repair businesses operating within the State, and to verify if the businesses are, in fact, disclosing the required information to consumers.
In addition to companies promising consumers they will improve or obtain an extension of credit, the Act also covers companies charging money simply for referring a consumer to another institution for credit. It is illegal for credit repair businesses to charge for this referral if the credit that would be extended is under the same terms as those available to the general public. Exempt from this law are financial institutions insured by the Federal Deposit Insurance Corporation (FDIC) or the Federal Savings and Loan Insurance Corporation (FSLIC), licensed real estate brokers, lawyers, consumer reporting agencies, certain nonprofit organizations and broker-dealers registered with the Securities and Exchange Commission or the Commodity Futures Trading Commission.
Companies also are prohibited by law from making any misleading or untrue statements to creditors or consumer reporting agencies regarding a customer's credit worthiness. The business must provide each potential customer with a written information statement outlining the consumer's rights under the Fair Credit Reporting Act, and giving a complete and detailed description of the services to be performed by the credit services business and the amount due.
Credit Services Businesses contracts must contain a three-day cancellation clause. Under the Act, the credit repair company cannot charge or receive any money until their services have been performed in full.
The Fair Credit Reporting Act
The Fair Credit Reporting Act gives consumers the right to obtain whatever information is in their credit file. If a consumer has been denied credit, the creditor is obligated to disclose the name and address of the credit bureau from which they received the information. The bureau will give the consumer a report on his/her file free of charge if the inquiry is made within thirty days of the credit denial. Consumers can contact the credit bureau if any of the file's contents appear to be inaccurate or incomplete. The credit bureau is required by law to reinvestigate any information on a consumer's credit record that he/she disputes. If the information is proven incorrect, it must be deleted from the file. If the facts are true, however, nothing can be done to have them removed from the record. Most negative information, such as late payment on bills, can be kept on file for seven years. A bankruptcy will remain on record for ten years. Time is often the only way to cure a bad credit history.

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Setting up Special Finance Procedures - Step One: Qualified Personnel

Setting up Special Finance Procedures - Step One: Qualified Personnel
by Arzu Algan from ADI

Today, gaining market share in the automotive industry is a battle. Any edge a dealer can gain over its competitors can mean the difference between victory and defeat. The industry’s latest battleground is the non-prime market. The non-prime customer population holds great promise for dealerships. However, conscientious preparation is necessary if this opportunity is to be fully embraced. Specifically, there are five guiding principles essential to the creation of a viable Special Finance Department:

Qualified Special Finance Personnel
Advertising/Marketing
Inventory
Lender Relationships
Organization/Effective Sales Procedures
Putting these elements together will set the dealership apart from its competition. Once these components are in place, dealerships are positioned to proactively pursue the profit available in the non-prime market. When the deal is structured correctly, the average gross from non-prime sales is typically higher than those from prime sales. Additionally, because many of these prospects are “credit captive” customers, they are often more receptive to advertising, and, therefore, easier to capture.


When properly pursued, the non-prime market allows dealerships to significantly increase profits and gain market share. The dealership increases its customer base by serving individuals which would otherwise be rejected from a dealer which lacks a special finance office. These customers, many of whom have suffered poor treatment at a competing dealer, will be more than eager to continue their positive business relationship with the special finance office.

Qualified Special Finance Personnel
Ultimately, a dealership will flourish or flounder based on the quality of its management and sales staff. Recruiting and hiring a dedicated, qualified staff is the first step in ensuring a successful Special Finance Department.

An effective Special Finance Department should consist of the following:

The Special Finance Director

The Special Finance Director is the key to the whole operation. The department must be lead by a competent, knowledgeable director if it hopes to succeed. This is particularly important during the department’s nascent stages, when the groundwork for the entire Special Finance operation is established.

The Special Finance Director is primarily responsible for maintaining lender relations, as well as securing approvals and ensuring timely funding. He or she also trains and supervises the staff and assists with deal structuring. In essence, the Special Finance Director supervises every aspect of the department, from such “big picture” concerns as building and sustaining positive relationships with multiple lenders to the fine details of an individual deal.

The Special Finance Manager

The Special Finance Manager works closely with, and oversees, the sales staff. They often act as a liaison between the Sales and the Special Finance Departments by actively encouraging communication between the two. The Special Finance Manager helps the Salesperson determine which vehicle is most appropriate for the customer. This decision is based on the customer’s credit history, debt to income ratio, and other personal information. The Special Finance Manager is also responsible for structuring deals to obtain approvals and contract the customer. This means they must structure a deal that will not only be approved by a lender, but will also include terms which the customer will find acceptable. A deal which is acceptable to the lender, but not the customer is of no use the dealership. At the same time, the Special Finance Manager is also responsible for closing the deals with maximized front and back end profit. This position calls for precise management, finding the most profitable deal possible while balancing the demands of the lenders with the desires of the customer.

The Special Finance Sales Representative(s)

Special Finance Sales Representatives are responsible for taking care of phone/ direct mail/ walk-in leads, setting-up appointments, maintaining a thorough knowledge of the dealership’s inventory and current advertising, accompanying customers on test drives, collecting stipulations and following-up with customers. They are an essential element in the equation for a successful Special Finance Department, being involved in the initial contact between the customer and the dealership, as well as guiding the customer through the final steps of the deal process. Should the customer feel the Sales Rep is unprofessional (or unqualified), they are likely to either avoid the dealership entirely, or walk away from a deal which could already be in process.

There must be enough Sales Representatives in the department to handle all the leads efficiently: one sales representative for every 100 monthly leads is often a good proportion. Just as important as sufficient numbers of Sales Representatives, however, is the appropriate treatment of these representatives. They must be properly educated in the handling of special finance customers, but they also must have a vested interest in the success of the Special Finance Office. Proper compensation of the sales representatives goes a long way in creating a successful department. Sales Representatives should be given the same bonuses as any other salesperson in the dealership; however, the best compensation plans are the ones where the same commission is given on both the front and back end profits of a completed deal.

Beyond The Special Finance Department

The dealership’s sales management, finance management and sales staff should be familiar with the entire special finance operation. Such cross training (in every aspect of the dealership) is a common trait shared by most successful dealers. This opens up the possibility of internal promotions within Special Finance Departments, without the loss of valuable time wasted on an external search for new employees. Thorough cross-training means qualified personnel are immediately available to fill an open position, making for a seamless transition.

Through sufficient training and cross-training, a dealership can easily ensure a viable Special Finance Department. In fact, an effective Special Finance Department is often a dealership’s most profitable area. This is only the case, however, when the Special Finance Department is run in an effective manner. While there are many different factors which impact the vitality of the department, success begins with the hiring and continued education of qualified personnel. Without this solid foundation, the Special Finance Department cannot thrive.

Dealership Sales Methodology

by Arzu Algan on the December 26th, 2007

People love cars and the decision-making process: the model, equipment, color and so forth. They take pride in the possession of a new car. What they generally don’t like is the experience of shopping for a new car. They often feel manipulated and mismanaged. Regardless of the deal they negotiated, there is always the feeling they could have done better, or that they were “taken.” Many are convinced that an undercurrent of dishonesty runs through the retail automotive business.

The basics of the automotive sales process are well known. First you advertise to get people in the door. As soon as they are on the premises, you determine the model that interests them and explain the product highlights. While conducting this walk-around presentation, you point out the performance, safety and comfort features. After a test-drive around the neighborhood, you get down to the basics of making the deal: checking and appraising any trade, presenting your first offer at pricing, and taking a deal to management (or sometimes taking management to the deal). With offers, counter-offers and negotiations complete, it’s time to talk financing. After presenting the other dealer services, an F&I (Finance and Insurance) manager calculates the financing, rate and monthly payments. By the time the customer picks up the new car, the salesperson is already focused on the next customer.

That’s the way cars and trucks have been sold for more than 70 years. Today’s consumers require better service, professional qualities and excellent product knowledge. The only way to guarantee an enjoyable shopping experience for your customers is to follow a sales process that is firmly grounded in meeting customer needs and exceeding their expectations:

Attract new customers without relying merely on price-oriented advertising.
Welcome the prospective buyer and establish a relationship, removing the customer’s apprehensions about the process of shopping for a new car.
Determine your customer’s needs, then target your presentation of product features and benefits to meet those needs.
View the delivery process as the beginning of a productive relationship – not the end of the sales process.
These procedures not only help turn prospects into buyers, but set the stage for long-term customer relationships that result in both repeat and referral sales. Today the customer cannot be manipulated by old-fashioned, high-pressure sales techniques. Instead, their needs must be identified through communication.

The same rules apply to the transaction in the Finance Office: customers expect the open communication, respectful treatment, and superior product knowledge they experienced on the sales floor to continue while they meet with the F&I Manager. Should this expectation be disappointed, the customer is likely to abandon the transaction all together.

In the past, F&I Mangers and salespeople alike may have spent 10 percent of the time building rapport with the customer, 30 percent presenting products and 60 percent closing the deal. Nowadays successful F&I personnel and salespeople invest 50 percent of the time building rapport, 40 percent presenting products and dealer services, with the remaining 10 percent usually more than enough to close the deal. Today’s focus is on the relationship between the customer and the dealership personnel, rather than just the mechanics of the deal.

Where is the line for nonprime?

Beyond Prime Where is the line for nonprime? Definition is more than a number

by Kristen Force on the May 27th, 2006

Given the credit characteristics of many consumers today, it’s likely that you’re already working with customers who have encountered credit problems. If you only serve these customers, often considered nonprime, as an afterthought or try to make them fit the mold of a prime customer, there’s a good chance you’re not realizing the profit potential of these deals.

In the automotive finance sector, most refer to the credit line “beyond prime” as nonprime. Nonprime lenders make a distinction between the boundaries of “beyond prime” and the subsets of subprime, special finance and the buy here/pay here process. Customers who fit this designation can’t be defined by a credit score alone, given the disparity in lenders’ considerations. According to Arzu Algan, dean of education for the Automotive Dealership Institute, a better way to identify a nonprime customer is to look at his or her credit report. Customers who have experienced one or more of the following events are often good candidates to refer to a secondary lender: History of slow payments

Recent bankruptcy
Foreclosure in history
Repossession in history
Tax liens and judgments
Collections and charge-offs
High debt-to-income ratio.
Keep in mind that nonprime lenders may be prepared to accept greater risk than other lending institutions, but there are still situations that are unacceptable, such as:

Repossessions, foreclosures within last 12 months (unless included in a discharged bankruptcy)
Open bankruptcy
Dismissed bankruptcy within last 12 months or multiple dismissed bankruptcies
Current auto/rent/mortgage delinquency (60+ days)
Delinquent child support
Consumer credit counseling
Income less than required
Debt-to-income ratio exceeding the maximum
Payment-to-income ratio exceeding the maximum
Residence and employment history less than required
Fraud/skip—previously reported as SCNL.
Algan says this is an important market for dealers to penetrate due to its growth (estimated at close to $100 billion by some experts) and the stabilization of the nonprime lending industry.

“Dealers are always interested in nonprime because of the bottom line,” Algan says, “but it also builds loyalty because they’re helping customers re-establish good credit.”