Eyo Toe | May 10, 2021
How can you keep your customer payment affordable as used car prices continue to increase? At first thought, the solution might be to extend the term. The infographic above shows what an extended term looks like in a Lease Contract versus a Retail Installment Sales Contract (RISC). Using the same IRIL or APR equivalent and vehicle retail value, the customer payment fluctuates depending on the length of the term.
A car of $14,000 value could be used for a 36 or 42 month term by adjusting the residual value to either 40% or 45% while maintain an affordable monthly payment for the customer. In order to get a payment similar to the 42 month lease ($404) the RISC would need a term of 54 months to get a similar payment ($403).
A Lease Contract is not only beneficial for your customer by providing a more affordable payment, but also for your dealership portfolio as shorter terms are associated with decreased delinquency, reduced charge-offs, and better overall performance.
