Bi-weekly pay plans need transparency


This is how bi-weekly payment plans work.

A consumer who pays $ 400 a month for a car loan pays $ 4,800 each year. But the same consumer who pays $ 200 every two weeks will make 26 payments for a total of $ 5,200. By using that additional $ 400 to repay the principal, biweekly payment services can help consumers pay off their loan faster.

Or that additional $ 400 could be used to purchase a service contract or other option, said Robert Steenbergh, founder and CEO of US Equity Advantage, a bi-weekly payment plan provider in Orlando. “It allows the consumer,” he said, “especially payment buyers, to get the other things they wanted and when you said,” That gets you to $ 450. ” [a month]’they would say no. ”

This is the experience at the Don Franklin dealerships near Cumberland, Ky. Owned by brothers Eddie and Dan Franklin. Eddie’s son Ben oversees R&I activities at the group’s 11 locations, which sell Ford, Lincoln, Nissan, Chevrolet, GMC, Buick, Chrysler, Dodge, Jeep and Ram vehicles.

“It’s a great thing for a lot of people,” said Ben Franklin. “We’re trying to all meet it.”

Bi-weekly payments allow traders “to put our customers on a better trading cycle and get the protection they wanted but couldn’t afford,” he said.

The dealers also benefit from this. “We have seen PVRs increased by $ 300 to $ 500 in some cases,” Franklin said.

According to US Equity Advantage, his research sells that merchants offering its AutoPayPlus plan sell 57 percent more R&I products of all kinds on average. AutoPayPlus is integrated with Dealertrack’s e-menu and 14 dealer management systems, including CDKs. It’s offered almost nationwide, although US Equity Advantage withdrew the plan from some states in 2014 due to regulatory concerns, which will likely reduce the company’s previous growth rate from 15 to 20 percent per year to 10 percent for 2015, Steenbergh said.

Some regulators have raised concerns that these programs are similar to payday loans that less experienced consumers take advantage of, but this was not Franklin’s experience. “The higher the interest rate and the lower the credit rating – these are the hardest-to-reach customers,” he said. “People who are more creditworthy, more responsible – it makes more sense to them.”

In addition to being able to pay off a loan faster, bi-weekly payment plans offer convenience and the ability for consumers to tailor their payments to their paydays, plan providers say.

A 2013 study by the US Bureau of Labor Statistics found that 37 percent of US private companies paid their employees bi-weekly and 32 percent weekly. Semi-monthly and monthly payments were far less common.

“We’re all cash flow companies,” said Dav-id Engelman, CEO of Smart Payment Plan in Naples, Florida. “We’d rather pay when we have the money.”

However, it is not easy to achieve this.

Lenders have “myriad methods of offsetting payments into the credit account,” Engelman said. Few automatically apply early payments to the financier. Some do this only after a consumer has made three payments ahead of schedule; almost all of them require additional payments to be sent to a different address. “Part of our job is to make sure that the additional payments actually count against the principal,” Engelman said.

Smart Payment Plan also follows up if problems arise. It sends “nearly 30,000” emails and phone calls from customers monthly regarding servicing their credit, including making sure the additional payments are properly credited by lenders and helping consumers “when they lose their jobs and make payments Have to plan again. ”said Engelmann.

Smart Payment Plan is offered by nearly 2,500 new car franchise dealers. The company doesn’t do business with buy here, shop here paying, doesn’t track those selling less than 100 vehicles a month, and has “virtually no sub-prime or corner lots,” he said.

Engelman and Steenbergh expressed frustration with regulators and critics, saying they fail to understand that consumers pay fees for their services, in part for the sake of convenience.

Some critics say consumers could pay for themselves biweekly without paying a fee to process the payments. “I bought an 11-dollar sandwich at the airport. Sure, I could have made it at home, but I paid to have someone else fix it,” Engelman said. “We could all mow our own grass, wash our own cars.”

In fact, according to Steenbergh, consumers couldn’t do this on their own, knowing how each lender handles early payments and arranges payments so that they are properly credited.

“That opinion,” said Engelman, “always comes from someone who has never spent 3 1/2 hours on the phone with a lender” to fix a mistake. “What’s your time worth? People see value in this service and are willing to pay for it.”

But Engelman and Steenbergh also stressed the importance of clearly showing consumers the benefits and costs of their services. Failure to do so drew the wrath of the FTC last year.


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