GE Money has shifted its powersports consumer lending almost entirely to installment loans, credit that is repaid in fixed, regular installments with a fixed interest rate.
The move primarily away from revolving loans is one that mimics what consumers are looking for, says Jeff Karls, a vice president of marketing for GE Money.
“Consumers are rethinking how they used to use credit,” he said. “Going out and putting $5,000 on your Visa card doesn’t seem so smart anymore, like it may have been. People are starting to think about how are they going to pay this down, they’re more cognizant of that. They want to be more financially responsible.”
GE Money currently has installment programs with Yamaha, Polaris, Suzuki and KTM. In the past, the company had revolving programs with a number of other manufacturers, but only has one such remaining program, with Honda.
GE Money is far from the only lending company that is focusing more on installment loans. Data from the U.S. Federal Reserve shows the amount of revolving credit in the nation has decreased each of the past four quarters and is down close to 9 percent compared to the year-ago period.
Karls noted part of the change in credit preference is being driven by new government policies. New credit card regulations in 2010 will place a number of restrictions on revolving finance programs and the marketing of such programs.
“There’s a lot of flexibility with installment loans,” Karls said, noting that such loans could include special low interest rates for a specific period of time or over the entire term of the loan. “I think one of the drawbacks people have associated with installment loans is at the point of sale,” he said, noting the perception of additional time it takes to do an installment loan vs. a revolving account. The company has worked to make that an easier process by launching its online management tool, GE Money Business Center, he says. “We have some new tools within the Business Center that makes the installment contract preparation process fast and easy.”
Besides the change at the counter, Karls says GE Money sees a long-term benefit to the use of installment loans, which can put consumers in a position to trade-up their new unit after a few short years rather than six, seven or more years.
“They’re looking for interest rates, payments they can afford,” Karls said of consumers, “but they’re also looking for payments that bring the balance down.
“We think that’s good for consumers. We know it’s good for us and we think it’s good for dealers.”
Copyright 2009 Powersports Business