Most modern car buyers prefer to start the financing process online early in the shopping trip and before going to a dealership.
This is the result of a consumer survey by CarGurus, an online marketplace for buying and selling vehicles.
It is a sign of the digital times, which stand in contrast to earlier times, in which the customer had to select a vehicle at the dealership and then agree on the financing terms.
In the past, the determination of the financing before the vehicle selection was mainly limited to subprime customers with limited options due to the low credit rating.
Using digital tools to pre-qualify consumers (with terms and conditions finalized and dealership paperwork signed) is a win-win for both customers and dealers, says Madison Gross, Director-Customer Insights at CarGurus.
“We see pre-qualified leads as 60% more likely to buy – and it takes less time,” she told WardsAuto.
The study sheds new light on car buyers’ perceptions of vehicle financing, including the impact it has on the total cost of a vehicle purchase.
“Monthly payments and interest rates are the most important factors,” including in many cases the vehicle price, gross (Picture below, left) says about the survey results. Only 18% consider the total price paid to be the most important.
The study shows that 93% of surveyed car buyers agree to prequalify for a loan before a visit to the dealership would help them.
But only 50% of them made use of the option. Many of these consumers feared that the online pre-qualification steps would simply be repeated at the dealership, says Gross.
CarGurus’ digital loan prequalification tool asks users for the price of the vehicle they are interested in, the amount of their down payment and the desired term of the loan. A “gentle” credit check is carried out to determine the creditworthiness. The consumer can then purchase a car at personalized rates offered by three partner lenders. Such tools go much deeper than mere payment calculators on automotive websites.
Nearly 70% of the 754 consumers surveyed for the survey said that a pre-qualified loan would help them feel more secure and ready to talk to merchants about financing
More than 65% found the prequalification useful because they wanted to complete a larger part of the shopping process before visiting the retailer.
“Our research has shown that consumers like to buy a car like buying their own home and want to find out about the financing of this large purchase in advance instead of just dealing with it afterwards,” says Gross.
“According to the study, there is also plenty of room to educate consumers about the general ideas surrounding car finance, the ultimate goal of which is to provide a better shopping experience for both consumers and retailers.”
The biggest problem for buyers when it comes to car financing was the fear that interest rates would not be “real” or would change, says Gross. 42 percent of shoppers would like to see their monthly payments and other loan terms while shopping online.
According to CarGurus, one of the key findings of the study is the need to alleviate the anxieties of buyers willing to buy by providing more price transparency at the beginning of the shopping process.
Many surveyed buyers said that the so-called F&I box, where in-store financing takes place, is still a dreaded part of the traditional car buying process. Top concerns include fear that the merchant’s terms will not be fair (37%), worry that the process will take too long (34%), and difficulty understanding credit terms (25%).
Almost half (42%) of new buyers say they spent more than an hour at the dealership discussing financing.
Two-thirds of them saw value in doing more of the car buying process before visiting the dealership.
CarGurus says the key takeaways for dealerships are saving time for both employees and buyers by providing more funding resources online, identifying pre-qualified leads that enter the store’s customer relationship management system, and preparing customer information prior to the dealer’s arrival.
Steve Finlay is retired senior editor at WardsAuto. He can be reached at [email protected].