Bi-weekly car payment provider AutoPayPlus is booming
Customers seem to appreciate the opportunity for a more frequent payment schedule than monthly, based on growth recently described by a bi-weekly and weekly payment division company.
AutoPayPlus had 85 employees at the time of an April interview with Automotive News and 95 on Tuesday, according to CEO Robert Steenbergh, who predicted he would add 10 to 15 more by the end of the year. He estimated that about 60% 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, of which 200 to 300 have been added since April.
AutoPayPlus offers dealer customers the ability for the business to automatically collect bi-weekly or weekly payments from their bank accounts and pass them on to the creditor.
American Financial Services Association spokesman Ed McFadden said the auto-lender infrastructure is set up for automated traditional monthly payments, although some non-prime or subprime AFSA members may allow payments every the two weeks. However, he said customers could act on their own and make several small payments manually or have their banks make automated transfers to a lender.
Splitting monthly payments makes a car loan more digestible and automation avoids late payments, according to Steenbergh. (He said a survey found AutoPayPlus customers said they made an average of 4.3 late payments.)
As Steenbergh described it, customers who feel they can’t spend more than $400 a month and would see $425 as a problem might find two payments of $212 a month acceptable. Also, most people are paid weekly or bi-weekly, he noted.
Steenbergh said AutoPayPlus has garnered more interest from retailers during this time of high retail prices and low inventory.
“Nobody wants to go and talk to a customer about an $800 a month car payment,” he said.
Dealership sales departments were more likely to suggest the split payment schedule to buyers, and the reduced traffic gave the finance and insurance office more time to discuss the option with customers, Steenbergh said.
Split payments also give dealers more room to sell F&I products, according to AutoPayPlus. The company said its research found that dealerships sold 57% more F&I products when AutoPayPlus was involved in the deal.
Bi-weekly and weekly payment schedules allow AutoPayPlus to collect an additional monthly payment over what the customer would normally make on a monthly schedule. Steenbergh said AutoPayPlus deducts a one-time $399 enrollment fee from the additional payment, then applies any balance and future additional payments to the principal of the loan. This potentially helps the customer repay the loan faster and lower interest over its lifetime.
Customers also pay a fee of $2.45 on each bi-weekly withdrawal and $1.25 on each weekly deduction, which equals over $60 each year of the loan. Neither that nor the $399 is funded, Steenbergh said.
Thus, although such programs promote faster amortization of loans, they will not necessarily result in net savings.
AutoPayPlus and other businesses – including a dealership – have, over the past decade, allegedly underplayed the extent to which payment division company fees would reduce net savings. In 2014, the National Automobile Dealers Association warned dealerships to ensure that F&I departments “are properly trained to accurately and adequately disclose all fees and costs, and not to exaggerate potential benefits” when shopping. review of these programs.
Steenbergh said Tuesday that AutoPayPlus discloses any savings or net cost to the consumer. He said savings weren’t even the main reason customers gave for using such a program, and “we just stopped pushing it” as a concept after regulatory attention.
He said customers don’t mind repeated charges over the life of the loan.
“People usually know each other,” he said.
A customer could try to pay their lender themselves on a similar schedule instead of paying AutoPayPlus to do so, Steenbergh said. But he compared hiring AutoPayPlus to handle the process to paying for a personal trainer instead of just going to the gym yourself.
“You are outsourcing your responsibility,” he said.
He pointed out that a single $35 late payment fee incurred by a customer trying to handle payments themselves “thanks” to several $2.45 fees they would save by not using AutoPayPlus.
Asked about the threat of lenders offering customers the same schedule as AutoPayPlus, Steenbergh said he’s worried about that, but the big lenders “really don’t want to do that,” he said.
AutoPayPlus is on the phone with customers a lot, an expense that could erode a lender’s margins too much, Steenbergh says. He said a large mortgage lender who had outsourced this work told him, “That’s too much customer support.”