Late fees are a revenue stream for any BHPH dealership, but does the revenue outweigh the higher financial risk that they may create?
After many years managing sub-prime auto loan portfolios, I have concluded that a late fee creates more loss risk than the revenue absorbs.
My rationale:
- Sub-prime customers usually live on very little disposable income, so even a small late fee can negatively impact their budget.
- A late fee may communicate to the customer that it is okay to pay late. Once a sub-prime customer goes delinquent, it isn’t easy for them to get back on track.
- Establishing a discipline that payments are due on or before the due date creates better expectations and better control of the collections dialogue — no grace period.
- If by taking a late fee, the customer remains delinquent, that customer will be less likely to pay going forward. Delinquency is a negative incentive to get future payments.
My premise is, you want the payments, not the car. Even though some of my colleagues argued that late fees are easy money, I stood firm in my belief that I never wanted a few dollars getting in the way of the customer making payments on time.
To clarify, I only offer this line of thinking to be thought-provoking. As an Independent BHPH Auto Dealer, you have the freedom to define and control your own destiny. You own the relationships with your customers and the opportunities to create repeat and referral business. In my experience, those are a lot easier to obtain when your customers aren’t in collections or repossessions.
Agora was initially founded as an online marketplace to enable secondary market auto loan originators and buyers to trade on one centralized platform. Since our launch, we have evolved our platform to include services focused on providing BHPH auto dealers insights into their loan portfolios that will enable them to maximize the value of their loans and increase their bottom line.
Stay tuned: In our next edition, we will talk about any topic you’d like. Let me know what you’re interested in talking about in the comments below.
Chris’ mission is to help BHPH dealers maximize their dealership investment with industry-changing analytics and financial strategies that put them on a level playing field with all automotive dealers. He is an experienced automotive finance leader with an extensive history of success in lending, servicing, and ancillary products with AmeriCredit, JP Morgan Chase, American Credit Acceptance, and GWC Warranty.