Car Dealer Insider Apr 15, 2009

F&I Matter - Bi-weekly auto loan payments come out of the BHPH closet and enter mainstream dealerships

A question for the mathematically advantaged: You borrow $1,000 at 20% interest. Which is better, paying the $1,200 principal and interest in a single payment at the end of one year or paying it off in 12 equal monthly installments of $100? That's easy. The single payment option is better for the borrower. Monthly payments are better for the lender, since the effective annual percentage rate (APR) is much higher than 20%.

But how about this question: Instead of making 12 payments over the one-year term of the loan, you made 26 bi-weekly payments. Which is better for the borrower? How about for the lender? It's a trick question. If the total interest paid remains constant at $200, then bi-weekly payments are far better for the lender. But if the APR is held constant, then the customer pays less than $200 interest and pays down the principal balance faster.

That's what's happening now... (153 of 610 words)

Also in this Issue:

• Bi-weekly payments - Part of the menu presentation, but with a cost (467 words)
• Rules for automated customer calls to get tighter on September 1, 2009 (597 words)
• Trend spotting (293 words)