Customers seem to appreciate the opportunity for a more frequent payment schedule than monthly, based on the growth one biweekly and weekly payment division company recently described.
AutoPayPlus had 85 employees at the time of an April interview with Automotive News and 95 as of Tuesday, according to CEO Robert Steenbergh, who projected it would add 10 to 15 more by the end of the year. He estimated about 60 percent of the growth was related to the company's automotive business.
Steenbergh said the company has a presence in 1,200 to 1,300 dealerships, with 200 to 300 of them added since April.
AutoPayPlus offers dealerships' customers the option of the company automatically collecting biweekly or weekly payments from their bank accounts and transmitting them to the creditor.
American Financial Services Association spokesman Ed McFadden said auto lender infrastructure is configured for automated traditional monthly payments, though some nonprime or subprime AFSA members may allow biweekly payments. However, he said customers could act themselves and make multiple smaller payments manually or arrange for their banks to make automated transfers to a lender.
Slicing up monthly payments makes a car loan more digestible, and the automation prevents late payments, according to Steenbergh. (He said a survey found AutoPayPlus customers reporting having made an average of 4.3 late payments.)
As Steenbergh described it, customers who feel they can't spend more than $400 per month and would see $425 as a problem might find two payments of $212 per month acceptable. Plus, most people are paid weekly or biweekly, he noted.
Steenbergh said AutoPayPlus has seen more interest from retailers during this time of high auto retail prices and low inventory.
"Nobody wants to go talk to a customer about a $800-a-month car payment," he said.
Dealership sales departments have been more likely to suggest the divided payment schedule to shoppers, and reduced traffic has given the finance and insurance office more time to discuss the option with customers, Steenbergh said.
Divided payments also give dealerships more room to sell F&I products, according to AutoPayPlus. The company said its research found dealerships sold 57 percent more F&I products when AutoPayPlus was involved in the deal.
Biweekly and weekly payment schedules result in AutoPayPlus collecting an additional month's payment than the customer would normally make on a monthly schedule. Steenbergh said AutoPayPlus deducts a one-time $399 enrollment fee out of the additional payment and then puts any balance as well as future extra payments toward the loan principal. This potentially helps the customer pay off the loan faster and reduce interest over its life.
Customers also pay a $2.45 fee on each biweekly withdrawal and $1.25 on each weekly deduction, which works out to more than $60 each year of the loan. Neither this nor the $399 is financed, Steenbergh said.
So while such programs foster a faster loan amortization, they're not necessarily going to result in a net savings.
AutoPayPlus and other businesses — including a dealership — have over the past decade drawn over allegedly downplaying the extent to which payment division companies' fees would reduce net savings. The National Automobile Dealers Association in 2014 warned dealerships to make sure F&I departments "are properly trained to accurately and adequately disclose all fees and costs, and not to overstate any potential benefits" when discussing such programs.
Steenbergh said Tuesday that AutoPayPlus discloses any net savings or cost to the consumer. He said savings wasn't even the main reason customers cited for using such a program, and "we just stopped pushing it" as a concept after the regulatory attention.
He said customers don't balk at the repeated fees over the life of the loan.
"People generally know themselves," he said.
A customer could try to pay their lender on their own at a similar schedule instead of paying AutoPayPlus to do it, Steenbergh said. But he likened hiring AutoPayPlus to handle the process to paying for a personal trainer instead of just going to the gym yourself.
"You're outsourcing your accountability," he said.
He pointed out that a single $35 late payment fee incurred by a customer trying to manage payments themselves "chews up" multiple $2.45 fees they'd save by not using AutoPayPlus.
Asked about the threat of lenders offering customers the same scheduling AutoPayPlus does, Steenbergh said he used to worry about that, but large lenders "really don't want to do it," he said.
AutoPayPlus is on the phone with customers a great deal, an expense which could cut into a lender's margins too much, according to Steenbergh. He said he's been told by one large mortgage lender who outsourced such work, "It's too much customer support."