Transparency key in auto finance, but dealers and consumers are split on its improvement

The need for transparency in the car buying and financing process has been accelerated by the pandemic as more consumers turn to digital channels to complete some — or all — of the transaction.

But dealers and consumers are split as to whether transparency is improving.

In fact, 77% of dealers surveyed by Capital One said the car-buying process has become more transparent, up from around 54% in previous years, Sanjiv Yajnik, president of financial services at the bank, said last week during Capital One’s Media Day.

Yet only 26% of consumers surveyed said that car buying had become more transparent as a result of digitization, down from around 40% in previous years, Yajnik said.

“How is that possible? Why are these people kind of moving in different directions?” he said. “The reason is, from a dealer’s perspective, they felt like they were doing a lot during the pandemic to make [the process] more transparent [and] becoming more digital. But remember, consumers don’t compare the car-buying process to what it used to be; they compared with everything else that they’ve got going on in their lives, and other industries are moving even faster.”

A vehicle is the largest purchase many consumers will make, second only to a home purchase, said Kerone Vatel, senior vice president of community impact and investment at Capital One, noting that merely 18% of consumers can afford to purchase a car with cash.

“Financing is absolutely critical to an individual’s ability to purchase a car,” Vatel said. “And transparency and access [have] really become critically important, too.”

Transparency, accuracy on digital platforms

For low- and middle-income consumers who were hit the hardest by the pandemic, understanding the nuances of their financing package, including fees and annual percentage rates, is paramount in the car-buying process, and will largely affect their final decision to purchase, Yajnik said, noting that a median income family in 24 of the largest 25 U.S. cities cannot afford the monthly payment to finance a new car.

“That transparency is massively important, because they can figure out if they can afford the car, they can push and pull on the numbers so they’re not at the last minute being confronted with these things or being disappointed when they go into a dealership to actually buy a car,” he said.

Lenders need to consider transparency — and accuracy — in the financing information presented to consumers when creating digital platforms, Yajnik said.

“What customers love is not just necessarily a site where they can go and have a look at the car and play around with a few numbers and get some approximation — they can do that with many websites,” he said, noting that customers want a site where “they can figure out, penny perfect, what [car] they can fit into.”

Capital One has long leaned on its online Auto Navigator tool to increase ease of access to financing and reduce friction in the car-buying experience, crediting its strong origination growth during the height of the pandemic to ongoing investment in the tool. Other lenders, such as Chase Auto and Canada-based Axis Auto Finance, have built their own digital retailing platform to meet growing customer demand. Santander Consumer USA, TD Auto Finance, Truist Bank, and Wells Fargo Auto, too, have entered into the digital car-buying and financing space through separate partnerships with AutoFi.

Capital One Auto Finance had a managed portfolio of $78.6 billion as of March 31, according to the bank’s earnings report.

The 23rd annual Big Wheels Auto Finance Data 2022 report is now available, providing exclusive statistics on the auto lending and leasing industry and a ranking of the top 200 auto financiers in the nation. Order your report.