VAC Case Study 3
The Hard To Sell Contract
- Background Information
- Here we present a representative dealer (as a hypothetical situation) that is interested in selling some of his notes. The dealer operates a successful Buy-Here-Pay-Here business and while he would prefer to not sell any of his notes, from time to time does sell notes to raise additional working capital.
- All conventional lender bulk purchase[http://VACorp.com/purchasing/index.asp] programs do not allow the purchase price to be greater than the "book value of the vehicle", thereby limiting the maximum proceeds from the sale of the note to the book value. This is the case even if the customer is a good paying customer and the balance of the note is significantly higher than the book value.
- This scenario presents a contract that as a result of the very low book value of the vehicle, the dealer will realize more proceeds from the cash advance program than from the out-right sale of the note.
- Overview of the hard to sell contract:
- Amount Financed: $5,800
- Principal and Interest Balance: $6,797.40
- Weekly Payment: $70.00
- 97 Payments with a final payment of $7.40
- Interest Rate: 17.31%
- Book Value: $1500.00
- Maximum Note Sale Proceeds via Bulk Purchase: $1500.00
- VAC Payment Calculator[http://VACorp.com/calculators/index.asp] used to arrive at hypothetical terms.
- The dealer is looking for a way to enhance the proceeds from their notes
- The dealer knows this customer, the customer has a good payment history, the car runs great and everyone is happy. But this particular vehicle model simply carries a very low book value. This condition alone limits the sale proceeds from this note to no greater than $1,500.00.
- The solution we propose to this problem is the Cash Advance program. The dealer can advance up to 9 months worth of payments on this low book value note, and still retain the balance of the payments that remain at the end of the contract with the customer.
- The Vehicle Acceptance Cash Advance program takes the monthly payment amount (in this case it is weekly- therefore the weekly payment x 52 weeks / 12 months equals the monthly equivalent amount) as the advance interval. This monthly amount is then advanced up front to the dealer for up to the next nine payments, but we will use 6 months worth of payments in this case study.
- Capital Raising Opportunity for the Dealer
The dealer can't wait for the life of the note to pay-out, he needs cash NOW. The Cash Advance program can do it for them on the same day.
- Our Solution (step by step) is as follows:
- $70.00 weekly payment x 52 weeks = $3,640.00
- $3,640.00 / 12 months = monthly amount = $303.33
- Monthly amount x 6 month advance = $1,819.98
- Five month advance fee = 24%
- Net check to dealer for first advance: $1,383.18
- Number of advances to dealer over the full term of the contract: 4
- $1,383.18 x 4 plus last payment of $7.40 = $5,540.12
Improvement in proceeds over Bulk Sale: $4,040.12 for a %269 IMPROVEMENT IN PROCEEDS with NOMINAL reduction in actual check versus Bulk Purchase.
- Analysis
- As you can see by comparing the outright sale to the cash advance, the dealer will realize $4,040.12 more from the cash advance program over the life of the note.
- In fact, the initial cash to the dealer is only $116.82 less with the cash advance program; and for that insignificant initial amount, the dealer receives over $5,500.00 total from that note over the next 24 months versus $1500 for the bulk purchase.
The Cash Advance program proves to be an advantageous program for the dealer that has low book value vehicles in their portfolio and needs to raise cash.
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Cash Advance Case Study 2 - Point of Sale[http://VACorp.com/advance/caseStudy2.asp] |
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More Information on the Cash Advance Program[http://VACorp.com/advance/moreInformation.asp] |
