Should You Offer a Subprime/Second Chance F&I Bundle?
Second chance, subprime…F&I staff use different designations for car buyers who have less-than-perfect credit. They may have issues caused by any number of factors either within or outside of their control. But one thing these buyers have in common…they need more help to get into their next car and likely could benefit from extra products or protections designed to help decrease financial burden in case something goes wrong with the car.
We’ve talked before about the benefits of creating a first time buyer F&I package but this is a little different. You’re not sure if the first time buyer will struggle to make their payment or have issues keeping up. The subprime buyer already has.
Subprime buyers are always a tough sell in F&I. Banks and OE captives usually have a mountain of requirements or stips needed to get approval and even at that, LTV’s are watched carefully so they don’t buy more car than they can afford. While it can mean higher buy rates for F&I (which is nice for reserve), it can be a headache for approvals.
When offering products in F&I to subprime buyers, the conventional wisdom is to offer everything but the kitchen sink assuming it works within the payment and the bank gives room for it. Some are notoriously stingy when it comes to what they will allow.
How Would a Subprime Bundle Help and What Would They Look Like?
VSC’s should, for example, be offered to every subprime buyer for obvious reasons. They may be tight on funds if they are trying to pay off debts and may have already struggled to come up with the down payment to make a deal work. They could also be a ‘ghost’ and have limited/no credit...and thus no credit card to use if there is an expensive mechanical breakdown.
Subprime buyers for VSC’s for another very good reason...some banks and finance companies will actually look favorably on this product as they will see it as a kind of financial insurance against a costly mechanical failure. They don’t want a broken AC compressor to keep them from making their monthly payment.
Of course a VSC should never be a requirement for financing/approval/sale (super illegal and unethical from days gone by) but if it’s reasonably priced and doesn’t break the bank, it’s a good thing for both buyer and banker.
Subprime buyers could have a bundle with VSC, PPM, and an appearance ancillary (interior/exterior, etc). This helps increase the odds that this buyer will make sure the car is sound mechanical and cosmetic shape to help with a future trade-in when they have established a positive repayment history and they can step-up to a better, more expensive ride.
GAP (if your state allows) could easily be a part of a bundle if the buyer is looking to purchase a new car. With new car prices heading north of $43k on average, this can be critically important peace of mind protection for the credit challenged buyer. If they are stuck with a significant loan balance shortfall and no way to pay it, their credit can suffer again.
If they can’t afford a full term comprehensive VSC, swap for a Lifetime Powertrain Warranty. Everyone knows that the cost to repair powertrain components (part and labor have gone up a lot) is only getting more expensive. Why not give them LPW as a standard offering? Once explained by your F&I staff, the buyer will likely see the benefit of having the most expensive part of their car fixed at no cost to them.
A CSI WInner - Showing Your Store Cares
Again, your F&I staff is giving them coverage designed to keep unforeseen mechanical issues (that are no fault of their own) from breaking the bank and putting them back in a bad credit situation. It can actually put your dealership in an incredibly positive and empathetic light that you want to make sure folks looking to get back on track will have affordable and useful protections in place to help them on their journey back to near-prime or prime credit.
Ultimately that’s all these buyers want…a chance to buy a decent car and not have to worry about coming out of pocket while working hard to make their payments on time. A bundle just for them delivers on this goal. You position your dealership as the ‘dealer who cares’ and the one that goes out of its way to help the credit-challenged in your community.
That’s a CSI homerun.
Click here to see how TruWarranty can help your dealership put together a package (ideally private labeled to your dealership brand) that appeals to the subprime/second chance credit buyers in your market. They may be a little harder to get approved but that should never be a barrier to being able to take full advantage of protections that all other buyers get.
Credit unions are the financial institutions to have tighten credit the most, which presents a new opportunity for F&I departments
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