The past five years have seen significant changes in the car-buying industry. Consumers are now very likely to do their research online and walk into a dealership armed with knowledge about the features and specs of the car they want.
As the habits of consumers have continued to evolve, so has the financing process. More loans originate as direct to consumer versus dealer financed loans. For the consumer, obtaining a car loan in this way has advantages.
Let’s explore why direct to consumer lending will continue to gain traction in the marketplace.
Dealers Are Not the Only Option
Not only are consumers more informed, but they also have more car-buying options. They can have a purchased vehicle delivered directly to their home and have more “no haggle” options in buying. There are “vending machine” sales where a consumer can choose a car and make a purchase.
When COVID-19 appeared in early 2020, car buying habits shifted even more. With businesses shut down, consumers were looking for ways to buy that did not involve spending hours in a dealership. This further accelerated the changes that the auto industry was already seeing.
Borrowers Can Compare Loan Offers
Just as consumers are able to look at their car options online, they can also review their financing options. Fintech has enhanced this process through online applications and automated approvals.
When financing through a dealer, the options are far more limited. After a long negotiation process for the vehicle itself, the borrower may feel trapped with the financing presented.
Some platforms can even connect borrowers to different lenders, allowing the borrower to compare loan offers.
Eliminates a Step at the Dealership
Car buying is a laborious process by itself. The test drives and negotiations can turn into an all-day event, with the last step being financing. By that time, the consumer is exhausted and has to wait even longer for loan approval and documents.
By obtaining financing options in advance, a step is eliminated at the dealership. The consumer can walk into the dealership with financing already approved.
Less Pressure at the Dealership
After the vehicle is finally negotiated, the borrower has to sit through additional upsells of warranties and other products from the “finance person” who oversees the loan documents’ signing.
The borrower may also feel pressured to review and sign the documents quickly, likely from wanting the process to end. With direct to consumer loans, the borrower will work with a lender and has access to the lender for any questions regarding the loan.
Competition Grows for Direct to Consumer Loans
Consumers in the past have dreaded the car buying process. Today, they are in more control, driving the trend for direct to consumer auto financing. Lenders must react quickly to make auto loans a part of their portfolios. Through technology, such as customer portals, loan origination, and loan management systems, lenders can continue to be agile as consumers drive market changes.