The Credit Interview

On this week’s edition of F&I Today, Becky Chernek discusses the importance of an effective credit interview, how it differs from a customer interview, and the necessary steps to determine the reasons behind a customer’s slow pay history.


Welcome to F&I Today I’m your host Becky Chernek. I’m so happy you’re able to join us today.  I’ve been in the automotive industry for over 30 years and in finance insurance since 1989. I founded Chernek Consulting in 2001 and provide current and up to date best practices in F&I training, offering workshops and in-dealership implementation for automotive dealers throughout North America. My goal is to help you to significantly boost profits utilizing innovative upfront sales strategies.  It’s a pleasure to be here with you.

On a previous episode, we discussed the benefits of the customer interview process, the reason why we do it and how it helps to build rapport and create a value proposition which helps you to sell more products. In this episode, I want to discuss the importance of an effective credit interview.

A credit interview is different from the customer interview. A credit interview is more involved and there are necessary steps to determine the reason behind a customer’s slow pay history. It also includes validating the customer’s employment, time on job and income.

Many of you are already familiar with tools such as 700 credit or Equifax’s work number. If not, you should be! It gives the dealer the option to validate the customers income right from the start from the credit bureau. How cool is that!

Still, I want to meet with the customer to validate their income and time on job to get the deal right before I submit it to the bank. Not all customers income can be verified using Equifax’s work number. Get your facts in order, be a documentation queen or king!

If the information doesn’t check out, you and I both know the deal will get conditioned or worse yet, you’ll get stipped!

This is a new year. It’s already bringing headlines. We not only got hit with some very nasty weather unlike we have ever seen in the past, at least since I was born, but we also got slammed with some unbelievable news. How many of you are aware that gap or credit life – disability insurance can’t be sold to any active military or household member or their associates?

This news was like being hit by a mac truck. It took us all by surprise! I’m sure NADA will fight this one tooth and nail, and I understand the big guns such as Hudson & Cook are doing whatever they can to turn this law around; but how many dealers know anything about it or are doing anything about it?

I understand some of the banks aren’t even buying contracts with gap insurance on it, and I can’t say I blame them. Too much at risk! Perhaps by the time we air this episode this law might be off the books, and we’ll be back to normal but who knows for sure?

The idea behind the credit interview is to assure you have your facts in order. Are you doing business with an active military member? One important matter you definitely want to pay attention to, if you happen to be working with an active military member who has derogatory credit, and the only bank that approves them is with a gigantic high interest rate.

My understanding (and remember I’m not a lawyer) is the government sees credit life-disability insurance and gap as an outside product that is not part of the car like the service contract, etch or tire and wheel. These two products are considered insurance, or, in other words, are considered a prepaid charge, which adds to the note rate.

For example, if you’re signing the customer up at a rate over 24.99 %, and you happen to sell the customer credit life – disability product and gap, it can add up quickly to over $2,500 of the loan amount. The $2,500 amount is considered prepaid charges which raises the note rate.

Let’s say it changes the note rate by as much as 12%, and your maximum allowed rate is 36%. You’ve got a problem on your hands. You need to be careful with this one. This situation generally occurs with “buy here pay here” dealers or independent dealers. It’s still something our franchise dealers need to be concerned about, although it’s not frequent, which is why you may be at a higher risk. It’s just not something you think about.

The credit interview will help you to weed some of that out. I don’t believe to date the DMS providers have a software program, at least that I’m aware of, that will help you to calculate the interest. It may be something you have to do by hand.

Some of the credit bureau providers have an option you can purchase that will help you to identify if the customer is an active member of the military, and I definitely advise you take advantage of it. As you conduct the credit interview you are taking the risk out of the deal and figuring out how to piece it together. Be the attorney for the dealership. Find a way to get the deal approved and keep out of trouble at the same time.

When you go over the credit application you are validating that the customer confirms the income, their employer and time on the job. How did they arrive at this amount? Is it before or after taxes? Are the earnings based hourly or monthly or bi-monthly? Does your customer have a check stub to prove their income?  You also want to validate rental or mortgage payment. Is the rent or mortgage being shared? Proof of residence is very important.

I know some of the dealers I’ve worked with often have the salesperson submit the credit application through their CRM provider. But be very careful with this one. You also want to make sure everything matches what you are submitting to the bank. Validate that the sales person didn’t fat finger the income.

I want to caution you, is your CRM secure?  You have all these social security numbers in the CRM. Make darn sure you have safeguard procedures in place. Who has access to your customers personal information?

Doug Fusco, CEO of Dealer Safeguard Solutions advises his dealers to protect the customers information with the electronic file vault. You still have the customer information on file but it’s secured, it’s protected. The customer initials next to the income and time on job or any additional income and then electronically signs the application. Anytime you make a change to the credit application, it’s time stamped and noted. It helps you to cover yourself and avoid any issues in the future.

As the F&I manager I may still want to print out the credit application and review it with the customer in case anything was left out. At least we don’t have customers’ personal information floating all over the dealership. It’s tight!

Gathering the information during the credit interview is essential to getting the deal approved without jumping through hoops. You want to reduce as many stips as you can. You also want to collect any many stips as you can! Documentation is your friend!

What I love about the electronic vault is the stips stay in the vault. They don’t disappear. Don’t you just love it when that happens? You think you collected the POI or POR, and when you send the deal into accounting, it disappears and now you are left trying to hunt down the customer to get the pay stub so you can get the deal funded. It’s a CIT nightmare!

I want to avoid any chance of having the customer return back to the dealership. And I want to keep the comptroller off my back and get the deal funded within 5 – 10 days. It’s not something that is impossible. You can get the deal funded within 5 – 10 days, just have your process down.

Know your banks inside and out and validate the information with proper documentation. The credit interview is essential to get the monkey off your back, and it helps you maximize profits while getting more deals approved.

It may also be extremely important to share the payments with the customer that they actually qualify for rather than obtaining bank approval and then find the customer can’t squeeze into a payment when it’s all said and done. This is just bad news, and it will cost you every time. You don’t want a repossession on your hands either.

A customer who has slow pay history can be the best customer you have. They will remain loyal to you if you just do the right thing by them. As I said many times the best customer is a repeat customer. I share payment options with the customer based on the way I believe the customer will likely get approved. I want to get an idea of the payment they believe they budget for.

Besides, the customer knows their budget better than I do. Just because I can get an approval for $25,000 out the door doesn’t mean the customer can handle the payment. I start off with 54 months and 60 months. But it really depends on the average term at the dealership. I’m not trying to scare the crap out of the customer. Just give them an idea of payment. They choose what’s best for them. Later, I find the best car that suits their needs and based on the terms they will get approved for.

There will be customers you simply can’t get approved. These customers, however, if treated right will be back when they reestablish their credit. This will become a dead deal file but it can live for another day if you treat the customer well. In my next episode, I’ll address how to work with your dead deals to potentially turn that into strong business opportunity and reduce liability at the same time!

That is why the credit interview is so critical today, perhaps more so than ever before. Create a checklist: mark off all the critical criteria to assure that your t’s are crossed and your I’s are dotted. This will help you to safeguard your deal, implement best practices while maximizing profits, and sell more cars.  Remember, every time you can’t get a deal bought, or have to bring a customer back, or you have to hire an attorney because you didn’t have your house in order, takes away from the bottom line or adds the chance of you losing your hard-earned reputation!

Thank you for joining me on F&I Today. Be sure to come back next week right here on the CBT Automotive Network for our next edition of F&I Today. Also, feel free to contact me regarding my consulting services. My specialty is providing F&I Training, helping auto dealers achieve high levels of performance and profit by improving internal processes that begin the moment customer touches down on the dealership website and ends with finalizing in-person transactions in F&I. Also, for our CBT Automotive dealers – contact me about my complimentary single store online analysis and take your business to the next level!

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Rebecca Chernek has nearly three decades of consulting experience in the automotive retail industry. She started her career by working with her father at their family-owned auto dealerships in Have De Grace, Maryland. She gained hands-on skills and experience in almost every aspect of the automotive sales process: new used cars and trucks sales, F&I, Director of Finance for volume operations and general management. Rebecca has helped hundreds of automotive car dealers throughout the U.S. and Canada streamline their processes and closing techniques and significantly increase profits.