Choosing the carrot is a common choice for auto loan credit reporting. What happens when the stick or negative reinforcement is the answer? Sometimes, consumers respond to these “stick” tactics as payments become late or missed altogether.
Communicating About Interest Rates
The initial stick is the realization that interest rates will change when consumers don’t pay their monthly amounts. Lenders might send a letter regarding the interest-rate change. It should stipulate that the rate will increase unless payments resume under the original contract.
Make sure that any communication also covers the overall effect to the consumer’s credit. Any loans moving forward will have higher rates. This fact includes loans that aren’t even issued from this particular lender. A stick that involves every facet of a consumer’s life will make him or her pay close attention.
Deciding on Late-Payment Charges
A definite stick for consumers is the looming late-payment charge. It’s entirely up to the lender when it comes to deciding on applicable fees. If a consumer has been in contact with the lender about their financial situation, fees might be reduced or eliminated entirely.
When lenders don’t have any communication with the consumer, the late charges prompt a response. Some people simply react to the stick better than a clear incentive.
Reporting Poor History to the Credit Bureaus
At some point, it becomes apparent that a consumer is being elusive with the payments. The final stick is reporting the information to the credit bureaus. If a business doesn’t have the manpower to complete this part of the work, partnering with a credit-reporting service might be the answer.
These companies specialize in auto loans and the credit situations that arise from reporting the hard facts. Lenders may see their customers respond with on-time payments after a report goes through.
Rejuvenating the Customer Relationship
After reporting the consumer’s payment habits to the credit bureaus, lenders might wonder about future transactions. They believe that the business relationship must be beyond broken. This concept, however, isn’t necessarily true.
Rejuvenate the relationship by offering a few concessions. Lenders might retract a late charge or other fee when payments resume with on-time frequency. Although lenders cannot erase the information forwarded to the credit bureaus, these small offerings can rebuild a relationship. Over time, the on-time transactions only improve the consumer’s credit. Lenders continue to benefit with a recovery of the original loan.
Attracting the Next Clients and Retaining Loyalty
Balancing the use of the carrot or stick is the challenge in the auto-loan industry. A company may know how to report auto loans, but it can’t be known as a credit-score controller from a consumer’s perspective.
As the auto loan credit reporting progresses through the years, reach out to the consumer with helpful information. A document with yearly values, such as principal and interest paid, tells the consumer that a lender is thinking about them. Retain them by offering a new loan once the current one finishes repayment, suggests FICO. This loan may be for another vehicle or another product entirely. By retaining customers, companies also drive their bottom line with curious newcomers who read about stellar service.
To Get Started With Auto Loan Credit Reporting
Contact Datalinx today with any questions about the carrot or stick. Dealing with consumers is a personalized process. Every account will be unique to its terms and the personality of the consumers themselves. Lending money for auto loans is a lucrative business. Companies must simply balance their loans with effective salesmanship revolving around creditworthiness and score improvements.
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