How to offer Car Finance?

How to Offer Car Finance

In today’s competitive car market, offering car finance can be a powerful tool to attract customers and increase sales. As many potential buyers may not have the immediate funds to purchase a vehicle outright, offering flexible finance options allows them to spread the cost over time, making it easier to afford their dream car. In this guide, we will explore the key steps and considerations for offering car finance, the benefits for both dealerships and customers, and how partnering with a finance broker like Kandoo can help streamline the process.

Why Offer Car Finance?

Before diving into the specifics of how to offer car finance, it’s important to understand why it’s beneficial. Car finance is not just a convenience for buyers, but a strategic offering for dealerships. Here are some key reasons why offering finance can be a game-changer for your business:

1. Increased Sales: By providing finance options, you open the door to a larger pool of potential customers. Many buyers cannot afford to pay for a vehicle in full, but with finance, they can make manageable monthly payments.

2. Higher Customer Satisfaction: Offering finance options gives customers more flexibility, which leads to a better buying experience. When buyers feel supported and given options that suit their financial situation, they are more likely to leave satisfied and return for future purchases.

3. Larger Average Transaction Value: Customers who finance their purchase often spend more than those paying upfront. They may choose a higher-spec model or add additional features, as the cost is spread over time rather than paid in a lump sum.

4. Stay Competitive: Most dealerships offer some form of finance. If you don't, you risk losing customers to competitors who provide more flexible payment options.

Types of Car Finance Options

There are several types of car finance available in the UK, and it’s important to offer a variety of options to cater to different customer needs. Below are the most common types:

1. Hire Purchase (HP)

Hire Purchase is one of the most straightforward finance options. The customer pays an initial deposit (usually around 10% of the car's price) and then makes fixed monthly payments over a set period, typically between 2 and 5 years. Once the final payment is made, the customer owns the car outright.

• Pros: Simple to understand, fixed payments, and ownership at the end of the term.
• Cons: Higher monthly payments compared to other finance options.

2. Personal Contract Purchase (PCP)

PCP is a popular option for those who want flexibility. The customer pays a deposit and makes monthly payments, but these payments are typically lower than with HP. At the end of the agreement, the customer has three options: return the car, pay a final balloon payment to own the car, or trade it in for a new one.

• Pros: Lower monthly payments, flexibility at the end of the term.
• Cons: Customers don’t own the car unless they make the final payment.

3. Personal Loan

A personal loan allows the customer to borrow the full amount needed to buy the car outright. They make monthly repayments to the lender over an agreed period, and the car is theirs from the start.

• Pros: The customer owns the car immediately, no restrictions on mileage or condition.
• Cons: The customer is responsible for the full loan amount, even if the car loses value.

4. Lease Purchase

Lease Purchase is similar to PCP, but with the key difference that the customer must pay the balloon payment at the end of the term to own the car. There’s no option to return the car or trade it in.

• Pros: Lower monthly payments than HP, eventual ownership.
• Cons: No flexibility at the end of the term.

5. Contract Hire (Leasing)

Contract Hire, or leasing, is different from the other options in that the customer never owns the car. They essentially rent it for a set period, making monthly payments, and return it at the end of the agreement.

• Pros: Lower monthly payments, no worry about depreciation.
• Cons: The customer never owns the car, and there may be mileage restrictions.

How to Set Up Car Finance for Your Dealership

Offering car finance at your dealership involves more than just having a few brochures on hand. It requires a well-thought-out strategy and a partnership with reputable lenders or brokers. Here are the steps to successfully offer car finance:

1. Understand Your Customers’ Needs

The first step in offering car finance is understanding your customer base. Are they looking for budget-friendly options? Do they prioritise low monthly payments or eventual ownership? Conducting market research and gathering feedback from your customers will help you tailor the finance options you offer to meet their needs.

2. Partner with a Finance Broker

Working with a finance broker like Kandoo can simplify the process of offering car finance. Kandoo is a UK-based retail finance broker that works with a wide range of lenders to provide customers with tailored finance solutions. By partnering with a broker, you don’t need to establish relationships with multiple lenders yourself. Instead, Kandoo will do the legwork for you, matching your customers with the best finance deals based on their individual circumstances.

Kandoo also helps ensure compliance with financial regulations, a critical aspect of offering car finance. By working with a regulated broker, you can rest assured that all finance agreements are transparent, fair, and in line with the latest UK regulations.

3. Get FCA Authorisation

In the UK, if you want to offer finance directly or act as a credit broker, you need to be authorised by the Financial Conduct Authority (FCA). This is a legal requirement to ensure that all financial services are provided fairly and transparently. The process of getting authorised involves demonstrating that your business is financially stable and that you understand the regulatory requirements.

Working with a broker like Kandoo can help simplify this process, as they can handle much of the compliance work for you, ensuring that all finance agreements meet FCA standards.

4. Train Your Sales Team

Your sales team plays a crucial role in offering car finance. They need to be well-versed in the different finance options available and able to explain them clearly to customers. Additionally, they should be trained in responsible lending practices, ensuring that they only recommend finance options that are suitable for the customer’s financial situation.

Providing regular training and updates on the latest finance products and regulations will ensure that your team can offer expert advice and build trust with your customers.

5. Integrate Finance into Your Sales Process

Once you have your finance options in place, it’s important to integrate them into your overall sales process. This could involve offering finance quotes early in the sales conversation or providing online finance calculators on your website to help customers explore their options before visiting your dealership.

The key is to make the finance process as seamless as possible. By offering transparent, easy-to-understand finance options, you can make the buying process smoother and more appealing for your customers.

The Benefits of Partnering with Kandoo

Kandoo is a leading UK retail finance broker that works with both customers and businesses to provide tailored finance solutions. By partnering with Kandoo, you can offer a wider range of finance options to your customers without the need to directly manage relationships with multiple lenders. Here are some key benefits of working with Kandoo:

• Access to Multiple Lenders: Kandoo works with a panel of trusted lenders, ensuring that your customers can access competitive finance deals.
• Streamlined Process: Kandoo handles the administrative side of finance agreements, freeing up your time to focus on sales.
• Compliance and Regulation: Kandoo ensures that all finance agreements are fully compliant with FCA regulations, giving you peace of mind.
• Tailored Solutions: Kandoo offers personalised finance solutions based on each customer’s financial situation, helping you provide a more tailored service.

Promoting Your Car Finance Options

Once you’ve set up your car finance offerings, it’s important to promote them effectively. Customers won’t necessarily know that you offer finance unless you make it clear. Here are some strategies to promote your finance options:

1. Update Your Website

Your website is often the first point of contact for potential customers, so make sure your finance options are clearly displayed. Include a finance calculator so customers can get an idea of their monthly payments, and provide detailed information on the different finance products you offer.

2. Use Social Media

Social media is a powerful tool for reaching potential customers. Share posts about your finance options, including testimonials from satisfied customers who have used your finance services. Highlight any special deals or promotions you may be running.

3. In-Store Promotions

Make sure your finance options are prominently displayed in your dealership. This could include posters, brochures, or digital displays. Train your sales team to mention finance options early in the sales conversation, so customers know that they don’t need to pay the full amount upfront.

4. Offer Special Finance Deals

Running promotions, such as 0% finance for a limited time or reduced deposits, can attract more customers to your dealership. These deals can be particularly effective when advertised in conjunction with new model releases or end-of-year sales events.

Conclusion

Offering car finance is a win-win for both dealerships and customers. It allows customers to afford vehicles that might otherwise be out of reach, while providing dealerships with increased sales and customer satisfaction. By partnering with a finance broker like Kandoo, you can simplify the process, offer a wider range of finance options, and ensure full compliance with UK regulations. With the right approach, car finance can become a key part of your dealership’s success.