Dealing with Higher Interest Rates – 3 Tips to Help F&I Weather the Storm

Dealers seem to be getting a lot of bad news these days. Tariffs threatening to increase the prices of new cars, sales slowing down, used car inventory costs rising at auctions, and now the downstream effects of rising interest rates.

No matter what side of the political aisle you reside on, there is one thing everyone in the automotive industry can agree on…higher rates hurt.

So how does your F&I staff deal with this? How do they handle the rate objections and turn it into a win for their margin?

Here are 3 tips to help weather the interest rate storm and still come out ahead…

  1. Educate Buyers – The average age of the new car buyer is 32 years old and for most of their adult lives thus far, they have enjoyed the lowest interest rates in generations, many even ZERO interest. Fed benchmarks have risen from .5-.75 percent two years ago to 2-2.25 percent this Fall. Your customer will not understand how the .5% increase they hear about on the news equates to the 4.5% rate you have now quoted.

Your F&I managers need the proper talking points to educate customers on how the math actually works. Let them know that even their local bank or credit union will likely have similar rates as well and this is not a dealer ‘trick’. Rates are going up for everyone across the board.

Be ready to explain that zero percent specials are also casualties of the new lending environment. In 2017, 14% of auto loans were zero interest…this year that has dropped to 7.4%. Customers may already notice less of those offers advertised but undoubtedly it will come up during the rate discussion. Be honest and explain that those offers were in large part a response to the recession and as rates rise, manufacturers can no longer afford those programs. Buyers will appreciate the information, even if it hurts.

  1. Offer Options – Now may be the perfect time to offer the option of leasing to your customers who are scared of the overall cost of a higher interest loan. Sure, it’s not for everyone but for some it can be a viable option to get a cheaper monthly payment with a smaller down payment than a loan would now require. Lease programs tend to flourish in a higher interest landscape. F&I managers have nothing to lose by offering both plans.

Another option (if the interest rate your store offers is simply too much) can be to have the buyer check with their local credit union. Not ideal of course BUT more buyers belong to credit unions now and a strong F&I manager can potentially get enough room in a draft to add a VSC or tire & wheel. It’s all in how it’s presented to the buyer and how much trust they have in the F&I manager.

  1. Be Strong on Product – Buyers will have to increase their down payment to keep the payment lower as a result of higher rates. Overall cost for the loan will increase. Loan terms will go longer. Now is the time for your F&I staff to be stronger than ever on product.

Strongly suggest GAP to help the buyer’s peace of mind in case the car is totaled by insurance. Make the case that with a longer term a Vehicle Service Contract would be important to make sure they are not paying for high repairs while STILL paying off the car. F&I staff need to position themselves as advocates for their buyers, painting the picture that many of the products they are offering will help mitigate the risks that come along with higher interest rates, larger down payments, and longer terms.

No matter what, a good rule of thumb in this current financial climate is to make sure your F&I staff gives the 20/4/10 advice to ALL buyers. 20% down payment, no more than 4 years financed, and a payment no more than 10% of household income. It’s a piece of advice that needs to be dusted off now that the zero percent days are coming to an end. The party is over… for now.

Kristine Cain
Kristine Cain
Kristine Cain is a contributing writer for CBT News. She has over 26 years of experience in the automotive industry specializing in F&I and B2B sales.

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