Like any of the products or services that you offer your borrowers or customers, there are numerous ways to offer GAP:
1. The "maybe they won't notice" method: With customer satisfaction at an all time premium, WE RECOMMEND NOT USING THIS METHOD.
2. The "assumptive sales" method: With full disclosure this method is very effective in minimizing objections and is a very positive method of selling GAP. The typical loan conversation is as follows:
Seller: Ms. Jones…I notice here that you are not putting the standard equity down payment of 20% or $4,500 into your new vehicle. Has anyone explained the benefits of putting equity into your new vehicle up front?
Borrower: No, what are the benefits?
Seller: Ms. Jones…While your credit credentials certainly would allow you to finance the full amount you are requesting, putting 20% or more towards the equity of your new vehicle has its rewards:
FIRST It can shorten the term of your loan and reduce your monthly payments. This saves you interest and will allow you to trade in shorter cycles, thus giving you control of maximizing the trade-in value of your vehicle and avoiding costly repairs once your vehicles warranty expires.
SECOND With car theft on the increase and many of the drivers out there driving around without any form of insurance, your chances of suffering a total loss to your vehicle are increasing as we speak. With only $1,000 down and 60 month financing, your vehicle will be depreciating faster than your loan during the first three or four years.
This means that, if you suffer a total loss to your vehicle, you could be short $3,000 to $5,000 or more between what you owe the bank and what your insurance company pays you!
Seller: You see Ms. Jones…You now pay $100 to $150 per month for auto insurance. The cost of GAP for your entire loan term of five years is $395 or $6.58 per month! That is a great deal on your loan compared to what your insurance costs you. I recommend that if it is difficult for you to come up with $4,000 or more now, when you have planned to purchase a new car and knew that you would need a large sum of CASH, it might be impossible to pay a $3,000 to $5,000 loan deficiency when the unexpected happens.
YOUR PAYMENTS WITH GAP ARE $______PER MONTH.
(Please refer to the GAP selling graph below to illustrate your point.)
3. Another and simpler method of offering GAP to your borrower is to mention it as follows:
Seller: Ms. Jones…Great news! ________ Bank has approved your loan at the amount you requested for the extended term of 60 months! Your payments are $415 per month including the 6 year, 100,000 mile vehicle service agreement we discussed and I have also included GAP, which will take care of any deficiency in your insurance settlement should your vehicle be stolen and not recovered or in a total loss situation and your loan payoff exceeds your insurance settlement.
Why you need to cover the GAP
1. Standard Financing (20% down +48 payments) was designed to keep you in an equity position throughout your loan period so that you can trade up every two or three years.
2. Many of our customers choose to leverage their good credit history and finance 90%, 100% or more of their vehicle purchase price (often rolling over the negative equity from their trade into their new car loan), because they are not comfortable with a $3,000, $4,000 or $5,000 down payment. This often necessitates our extending their loan term to 60 months or more to keep monthly payments affordable.
It is important for you to recognize the potential risks of your car becoming a total loss, due to theft or collision during the term of your loan.
