When it comes to financing a used car purchase, 32% of people would not consider finance from a dealer, 31% of people would consider finance from a dealer, 33% of people would choose a High St Bank/Building Society. These numbers from MotoNovo’s recent Attitudes to Car Buying Research suggest a modest shift by consumers away from dealer finance.
The latest world data suggests that a trend away from dealer finance for used cars may be emerging. Used car consumer finance volumes fell by 7% YoY in August. The overall consumer credit market in August fell by 2.8%. August’s numbers followed a year-on-year fall of 19% for used car finance against a much smaller fall of 2.7% for consumer credit. This is not an exact comparison. And these numbers suggest that dealer finance could have lost ground to personal loans.
Consumers are taking greater control of their finances, which are empowered by digital tools. It is a challenge the dealer finance community should recognise as MotoNovo’s MD Karl Werner reflects. For players such as MotoNovo who kept lending during the pandemic, supporting their dealers, the pandemic proved to be positive. This pandemic has witnessed a marked increase in consumers awareness of their finances. An accelerating awareness of creditworthiness, driven by a series of digital tools is one among them.
An estimated 30% of people have yet to look at their credit score. Consumers with this information can search for their ideal loan/finance product. Pre-approved loan levels jumped from 33% of applicants in January to 44% in August. Karl is left, and concluded that as consumer behaviours and expectations have shifted, so should the dealer finance model. Consumers are changing the financing landscape. Dealer finance can compete, but if they want to capture the attention and interest of all consumers, they need to embrace a pricing approach that reflects the access to creditworthiness consumers now enjoy.
At MotoNovo, they can benchmark the differences between their ‘MotoRate’ risk-based pricing used by two-thirds of their dealers and a fixed interest rate model, used by a third. MotoRate agreement acceptance rate for August was 50%. Proposal to Pay-out rates are 40% on MotoRate Terms vs 28% on non-MotoRate Terms