As new vehicle sales rebound from the impact of the COVID-19 pandemic, it appears that more and more potential buyers want to have more certainty about their financing before hitting the dealership sales floor.
A new study from CarGurus.com, the global online automotive marketplace, shows that shoppers prefer to have some idea about what their financing options are before they head out the door to look at a vehicle.
In fact, 93% felt that being pre-qualified for a loan would be helpful as they looked to get a good deal on a new ride. The study also showed that buyers aren’t as well as informed about their options as they could be. Although better than nine out of 10 wanted to be prequalified, a third didn’t realize they could do just that, and only half actually did get tentative approval for financing beforehand.
Improving the shopping experience
“Our research found that consumers are eager to purchase a vehicle in a similar fashion to buying a home, and they want know more about financing for this major purchase in advance instead of treating it as an afterthought,” said Madison Gross, director of Customer Insights at CarGurus.
Pre-qualifying for auto financing gives shoppers more confidence, with 68% of believing that doing so would help them feel more confident and prepared to talk to dealers about financing, and 66% found value in pre-qualification because they wanted to complete more of the shopping process before visiting the dealership.
Other findings included:
- 46% of shoppers are concerned that their pre-qualification rates would not be final;
- 41% are concerned that they would have to repeat the financing process at the dealership; and
- 42% of shoppers wished they could see their monthly payment estimates while shopping for a car online before visiting a dealership.
In addition to asking car shoppers about pre-qualification in advance of visiting the dealership, the study also aimed to learn more about their overall automotive financing knowledge.
Potential buyers lack education
The study also discovered that buyers weren’t entirely certain about the processes — and profits — of an auto dealership and how it may impact their experience. For example, shoppers believe that a vehicle’s price drives the most profit for dealerships (45%), while 30% think that auto loans do.
Additionally, buyers consider different factors when it comes to the loan on their vehicle. For 37%, the monthly
payment and interest rate equally mattered most. However, the total price paid over loan life ranked at the top of 18% of buyers’ lists. In 7% of cases, the length of the loan drove their thinking.
When presented with an imaginary car shopping scenario involving a 5-year loan with 5% APR for a $25,000 vehicle and $5,000 down payment, shoppers believed the following would have the greatest impact on monthly payments:
- 46% – whether the interest rate increased from 5% to 8%
- 29% – if the length of the loan increased from 5 to 6 years
- 24% – if there were no down payment
“According to the study, there is also a lot of room to educate consumers on the general ideas around automotive finance, which should ultimately provide a better shopping experience for both consumers and dealerships,” Gross said.
In addition, the study delved into a wide array of similar automotive finance topics, some of which regards ways to improve shoppers’ experiences when purchasing a vehicle.
With the pre-qualifying auto financing and the buyer going to more then one dealer will these credit checks have an effect on your credit report as hard hits and lower your report ?
That’s a good question, Clarence. I know that there are ways that retailers can check a person’s score without delivering a hit. We’re going to have to find out more. Hope to be able to report back on this soon.
Paul E.