Harnessing opportunities in direct lending

direct to consumer lending

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The auto industry has been shifting, with consumers moving online and demanding an improved experience, and the way drivers buy, own and pay for vehicles is being dramatically reshaped. Buyers are eager for alternatives to long hours of painful dealer negotiation and opaque financing options.

They are driving change in the marketplace, with dramatic implications for future-focused lenders and dealers. Trends in auto lending show an uptick in direct-to-consumer transactions that will only increase. In fact, two out of three shoppers will likely purchase their next automobile 100% online, according to a Cox Automotive study. Forward-looking organizations are already preparing to get ahead of this change in the marketplace.

Increasingly, buyers want limited contact with dealers, and not just because of COVID-19. High pressure sales tactics and lack of transparency as to financing options are the reasons most often cited by consumers that buying a car is an experience to be endured, not enjoyed.

Potential car buyers can now shop online, buy cars and have them delivered to their home. They do not have to go through a negotiation process but can purchase a car at the exact price listed. And while the pandemic is temporary, the changes in consumer car-buying habits will likely be permanent. From here on in, the auto industry will become “digital first.”

Putting the customer first

Direct-to-consumer auto loans represent a massive opportunity for lenders and dealers who are both savvy enough to follow consumer trends and nimble enough to get to the market quickly.

For lenders to succeed with their direct-to-consumer strategy, every step in the buyer’s journey must be understood through the lens of the customer experience: It must be seamless and stress-free. The customer needs to be in charge of structuring the deal. They’ll want to see different options presented in a way that is easy to understand and that supports them in making the right financing decision.

Lenders will be rewarded for being transparent about the different options available and making it easy for buyers to purchase additional products or services whenever possible.

Studies show closing ratios double and triple if the customer journey minimizes friction. The evidence is clear: When consumers make their purchase from their own living room, they tend to spend more on their vehicle.

Partnerships pay off

As lenders work directly with consumers, they can partner with dealers to offer additional products to boost profitability from the transactions. When products such as extended warranties, GAP insurance and credit insurance are offered through online channels, borrowers will take advantage of them because they feel secure and in control of the process.

As lenders look to increase their direct auto lending, there are also opportunities for vehicle refinancing and other products. The goal is to create a transparent environment focused on the needs of the customer. Only then will dealers and lenders secure the customer relationship and seize the opportunity to extend their offerings beyond car loans to other products, services and financing options in the future.

Bryan Smith is head of customer growth and strategic partnerships at Inovatec Systems. JAVELIN by Inovatec is a modular lending platform that helps lenders drive efficiencies through automation, while only paying for deals that are booked.

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