By the time this article is published, buy-here, pay-here dealers will be well into the 2016 tax refund season. The good news is that tax refund advances are back for the first time since 2012.  The bad news is that refunds are tracking behind schedule through February, but are starting to “trickle through” as we head into March.

Will the 2016 tax refund season be a boom or a bust for your BHPH business?   Many BHPH dealers forecast for as much as 40 percent of their annual sales to be generated during the tax refund season. The most successful BHPH dealers plan ahead for this time of year in several facets of their business. 

Many will ramp up vehicle inventory levels in anticipation of increased sales numbers. Some will implement a tax refund program to process tax returns directly from their BHPH location. Others will change their advertising message to encourage customers to use their tax refund as a down payment on a newer vehicle. Still others will use a tax refund to help customer bring their delinquent loan payment to current status by applying a portion of the tax return to the delinquent account.

However, just adding a large numbers of new loans during the tax refund season does not translate to success in a BHPH operation. Collecting on those loans is where true success is measured, and that success may not be known for two or three years.

It’s the lure of a large down payment.

Most BHPH dealers will see a sharp increase in sales during the tax refund season. However, approving loans just to hit aggressive sales targets could actually backfire on a dealer in the BHPH business. Tax refund season means that customers will generally have larger down payments compared to other times of the year. 

A recent survey of BHPH dealers showed that a large percentage of dealers would let a large down payment influence their loan approval decision. Some dealers feel that a large down payment gives the customer “skin in the game”, and as a result the customer is less likely to default on their loan. Other dealers believe there is no direct correlation between the amount of down payment and the likelihood the customer will default on their loan.

These dealers believe that the down payment and the customer’s ability to pay should be evaluated separately.

With those factors in mind, here are the seven key drivers to success during the tax refund season. The most successful BHPH dealers will tell you that one of the keys to success during the tax refund season is to maintain discipline in the underwriting and verification guidelines that you have established. In addition, the following key drivers to success also apply:

1. Don’t take shorts cuts to approving a loan application because of a large down payment.

2. Don’t skip steps in the underwriting process such as pulling a credit report, getting a loan application with three years prior history on residence and employment, and getting a minimum of five references with verified phone numbers.

3. Don’t put the customer in too much payment.  A large down payment should be used to improve deal structure (lower the payment, shorten the term) but not to approve a loan.

4. Calculate a net pay to payment ratio before a loan decision is made to verify the customer can afford the payment. One of the most common mistakes BHPH dealers make is putting the customer in more payment that they can afford.

5. Don’t let installing a GPS or starter interrupt device influence your loan decision. A customer with a high net pay to payment ratio or poor job or residence stability will be a problem customer regardless of installing a GPS or SID device.

6. Insist on getting a co-buyer on the loan application with every opportunity.  The co-buyer provides an additional layer of security to protect the loan payment from going into default.

7. Don’t be too quick to pull the trigger on repossessions. Most BHPH customers will struggle with their loan payment at some point during the term of their loan.  They may need frequent payment arrangements to get their account back to current status. The most successful BHPH dealers will work with their customers, keeping them in the vehicle and making payments.  For these dealers, repossessing a vehicle is the last option.

The tax refund season can provide a big boost to a BHPH dealers annual business results.  However, big sales numbers during tax refund season can be deceiving.  The key to success in BHPH financing is not just putting loans on the books, it’s collecting out those loans!

Mark Dubois is president of Dealer Performance and Consulting. He has more than 30 years of experience in the automotive business ranging from sales, dealership management, recruiting and training, e-business, marketing and BHPH management. His website can be found at www.dealerperformanceandconsulting.com, and he can be reached at (941) 729-2357 or dealerperformancellc@gmail.com.