Extending credit to an individual for the purchase of a vehicle can be a risky venture. Small-business owners verify and examine the person’s credit history with as much attention as possible. At the end of the day, the business must make a decision on either taking the customer on or passing on the deal. When it comes to auto loans credit reporting, there are certain features that you can bring up as the consumer commits to the sale. Should a business use a carrot or a stick in this case?
Explore the options that involve positive or negative reinforcement. There are advantages and disadvantages to both sides.
Streamlining Auto Loans Credit Reporting Processes
Hold out the carrot to consumers by simplifying the lending process. Companies lose a lot of business when piles of paperwork or required documents are part of the transaction, reports Equifax. Asking for borrowers to verbalize their income should be good enough. The documentation process will eventually prove them right as the financing finalizes through the proper channels.
By trusting in the consumers, a company builds a reputation as being customer friendly. Qualified consumers choose one company over another because strict rules make the process too difficult to handle. High-quality consumers will be loyal to the business and on time with their payments. Reporting auto loans won’t be a daily occurrence as a result.
Offering Multiple Payment Plans
A fantastic “carrot” that works well as positive incentive is multiple payment plans. The consumer feels like the lender is doing a favor for them, which in turn, creates an obligatory situation. They want to pay back the funds on time. Reporting auto loans to the major credit bureaus isn’t necessary with this incentive.
Try payment plans with varied lengths and personalized due dates. At the end of every month, lenders receive their funds without any problem. Flexibility with payment plans is a courtesy that consumers perceive as choice. They commit to a lender and remain in good standing in many cases.
Accentuating the Credit-Score Perks
A motivational strategy that works for most consumers is the carrot of credit-score perks. With each on-time payment, the consumer’s credit improves with less debt. The fact that the payment is always current gives the score another boost too. For many lenders, knowing how to report auto loans will become a lost art when credit-score improvement is the main incentive.
Opportunities for Further Engagement
As consumers near the end of their loan period, lenders might extend a different carrot. New loan terms for an updated car model can be extended. Consumers who pay on time should be rewarded with low rates, flexible terms and improved credit scores. This business relationship moves forward onto the next loan if the lender offers enough incentives.
Advertising Easy Payments
Some lenders make it difficult for consumers to pay them. Confusing addressing or broken website links are to blame. Lenders must make it easy to pay the monthly bills. Offer automatic drafts from checking accounts, clear addresses for mailed-in payments and app access through mobile phones.
These carrots take the thinking out of paying the auto-loan bill. The lender looks like a hero, which encourages the consumer to remain loyal.
Shoring up the Grace Period
Life happens to everyone. Forgetting about a mail holiday or leaving a bill on the dining room table is commonplace. As a lender, accentuate the grace period for those good customers. Most businesses have one or two weeks where payments are considered current even after the official due date.
Let consumers know that this grace period doesn’t affect their credit score. Lenders end up rooting for the consumer with this carrot.
Choosing the carrot is a common choice for lenders. What happens when the stick or negative reinforcement is the answer? Check out part two!
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