There is one objection that F&I managers are hearing more and more: “I am going to use my Line of Credit!”
Today’s financially-savvy buyers, it seems, are fully aware of all the advantages that come with using their personal credit lines and fully prepared to handle any and all emergencies that may pop up. None of them ever expect to be caught short. And isn’t that a nice little fantasy?
The truth is, very few of even the so-called money experts among us saw the current financial Tsunami coming and even fewer insulated themselves against the consequences. No-one should truly believe they are forever immune to the unexpected. That’s where a Line of Credit should come in.
What is a Line of Credit?
The obvious response would be that it’s exactly what its name implies. But, Occam’s Razor aside, sometimes the obvious response can hide other equally important factors.
It is also, for example, insurance against the unexpected. When one is granted such an opportunity, is it really smart to use it with little or no regard for those unexpected emergencies that may befall? As generous as any lender may be, chances are they will not extend a money-filled friendly hand if the recipient is truly in need and doesn’t already have an approved Line of Credit – or theirs is fully used.
Why use up their credit lines?
Since many buyers are using their Lines of Credit rather than the funds we can provide for them, could it also be that our rates are higher than what they can obtain on their own?
Without a doubt this is the main reason that choice is being made. Buyers truly believe the cost to use their lines of credit will result in an overall cheaper purchase. The fact most of us have now become rate-sensitive also adds to our inability to overcome the objection. We think our rates are too high as well!
Or could it be just ego?
There are other possible reasons as well, one of which is the “Ego Factor.”
Could it be that some folks may be using their credit lines to show off the fact that they actually have one? Might one or two (actually there are lots more than that) be “Trumpenizing themselves (yes, I just made the word up with ‘the Donald’ in mind), by inflating their chests and showing one and all they have the wherewithal to “write a cheque for the whole amount?”
And isn’t it also possible that many of these folks have very little to no idea how revolving credit really works?
The perils of revolving credit
There is a reason why Lines of Credit are called revolving; once you’re hooked on them, chances are you’ll never get off the repayment merry-go-round.
When someone buys something using conventional financing they know exactly how much they are going to be paying for it – assuming the loan goes to full term. The element of surprise is eliminated from the equation. But does the same hold true with a Line of Credit?
Human nature being what it is, it’s a reasonable assumption that most people never do pay the things off. They just keep adding to them, paying off a bit and repeating the process. If that’s the case, how can one actually be certain that their long-term cost of borrowing is going to be better than by using your finance plans? Furthermore doesn’t the reality of variable rates versus the locked-in variety become an issue as well?
What about the unforeseen emergencies?
If you are a regular reader of my column, a past seminar attendee or a viewer of my on-line webinars you will know that I promote the power of Question-Selling. Overcoming the Line of Credit objection may be accomplished utilizing a series of questions designed to create a pathway through a mental forest where none existed before.
Its starting point should instantly create a fork in the road where going one direction will result in one destination and the other (or possibly a third) will leave the person with other consequences/benefits.
Since most people (when dealing with Lines of Credit) only see one path ahead of them, throwing some alternatives in their way may create some hesitation and a desire for clarity before embarking on their trip.
For example, rather than say, “What is the rate you’re getting with your LOC”, you might try: “I am glad you are one of those fortunate enough to have a Line of Credit. Tell me, what’s the main reason you’ve decided to use that financing option rather than the ones we have to offer you?”
More likely than not, the response will be: “interest rate.” Your next question could be: “Then you understand that you may end up paying more by using it, is that right?”
Once they say, “What do you mean?” (and they will), you can ask: “If you knew that using your low-rate LOC could actually cost you more than the slightly higher rate we’re offering, which plan would you use?”
Then you provide choices, by asking more questions, creating that “fork in the road” I spoke of earlier. Make sure the consequences of each path are serious enough to make the decision-making process work in your favour – which in turn will work in theirs. The final destination should be using your finance plan to get them to keep their LOC available as a hedge against the unexpected.
I believe the term Line of Credit might better be called a “Personal Life-Line” for that is what it really is and how it should be considered by those who have to use it. And that’s something they really need to know.
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