High Credit Balances / Low Credit Scores
When the bankruptcy laws changed, the minimum monthly payment on revolving debt went from two percent to four percent of the outstanding balance. Overnight, the monthly obligation doubled. Many people are discovering the easy charges are not so easy to repay.
What do you do with a customer who is encumbered with high credit card debt and a low credit score? Many managers will say there is nothing that can be done in such a situation. At first glance I might agree. However, a second look reveals that there is always hope, and hope can open the door to opportunities.
Credit the application
Sometimes a closer look at the credit application presents an opportunity. There are some key areas that often go unnoticed, namely, the part of the application that asks about home ownership. Is the customer a homeowner? When did they purchase the home? Do they have a second, or how much equity do they think they have?
Using Zillow.com, the F&I manager can enter a customer’s address and see if the customer has equity in the home. What are homes selling for in the area? What is the balance on the first, and perhaps the second? Does the dealership have an alliance with a mortgage banker who can save the deal with a new second or a bridge loan? Perhaps a new HELOC might be the answer.
Help from equity
HELOC (Home Equity Line of Credit) typically has a variable interest rate, and the payments can change every month. A HELOC may also require a transaction fee, as well as an appraisal fee. Customers need to inquire about the margin and the index of such loans. They should also ask the lender about when and how much the rate can move. Does it go down, or does it only go up?
Sound decisions are made from accurate information. When it comes to placing the home as collateral for anything, the homeowner should become fully informed about all the terms and conditions of a HELOC. Typically, these loans are funded three days after the customer signs the loan documents.
Securing a Second
Seconds usually have a fixed interest rate, and they present the ability to absorb all the revolving debt into an environment that enjoys a tax deduction for the interest paid. Yes, I realize that the customer is placing their home as collateral. And yes, sometimes that is the only way the vehicle can be delivered.
A professional F&I manager can only present opportunities to the customer. It is the customer who must make the right choice for his or her own circumstances.
Dealer Marketing, November 2006