21st century auto financing
Fintech may soon be coming to the auto loan market. VW has announced that it is investing several million dollars in auto financing platform, AutoGravity, according to Fintech Futures.
Currently, if drivers want to take out a car loan, they have to go to a dealership to apply. The dealer takes their details and then asks for a loan on their behalf. The lender will then consult the customer’s credit report and either accept or reject the applications based on the score.
The process isn’t consumer-friendly. People have to hand over lots of details and then wait for confirmation. They don’t know whether the lender will accept their application ahead of time.
Fintech company, AutoGravity, however, says that it has an app that will change the current setup. It is promising users the ability to provide all of the information they need to take out a car loan upfront, negating the need for redundant interactions with the dealer.
The company hopes to make the market more transparent for customers. Ultimately, users will be able to compare car financing options from across the market, customized to them. The app will connect customers with rating agencies, creditors, and dealerships, integrating the three to an extent we haven’t seen before. Consumers will get more choices over the financial products they use and can see all of their options upfront.
Currently, many dealerships have a close relationship with preferred creditors. Dealers will attempt to sign customers up to lending products from their partners, instead of introducing them to all of the options available to them across the market.
Customers don’t always know the rates that they should expect, based on their credit scores. Many go into negotiations blind, without really knowing whether the options are competitive or not. Dealerships and creditors have all the power. The customer doesn’t know whether they are getting a good deal or not.
The new fintech app from AutoGravity levels the playing field. It allows customers to make educated decisions when taking out financing without having to rely on the merchant. Similar to a price comparison site, the app shows them all of their options ahead of time.
Carmakers are getting behind the concept. Daimler, for instance, is putting several million euros into the project as an investment. Other automakers are interested and have supported the firm since its initial funding round in 2015.
Manufacturers are keen to support any project that makes it easier and cheaper for customers to buy their products. A comparison service that allows people to see all their options is a game-changer in an industry currently beset by cushy relationships and gatekeepers. The app could open up the market and put more power back into the hands of consumers.
These changes are part of a broader digital transformation in banking. We’re increasingly seeing the sector becoming more customer-friendly and transparent. People now know more than ever about their credit rating, the financial products available to them, and the amount of borrowing they can take out safely.
US Bank, the people behind the project, says that they are looking to help dealerships through the app. While it might mean the end of special relationships, it could be the beginning of selling more products. Car dealers wouldn’t need to go to specific lenders for favorable rates. Instead, customers would pick products most suitable for them, and then dealerships would receive all the relevant information.
Customers could also arrive at the dealership pre-approved for a loan. Therefore, sellers wouldn’t have to go through the painful process of telling a customer that they’ve been rejected. That task would fall to the creditor.
The app gives users several options for how they’d like to close their loan or lease. They can either do it online, in a bank, or at the dealership itself. AutoGravity expects that the vast majority of customers will choose the first option. With pre-approval, they can walk into the car dealership, knowing that they have a certain amount of cash in the bank with which to negotiate. The ball is then in the court of the dealer.
The hope is that the app will fundamentally change the car-buying experience. Consumers won’t have to sit opposite car salespeople, biting their nails, waiting for the results of the credit applications. Instead, they can get approval at a convenient time and then use the cash at a time of their choosing. Car buying could happen at any time and any place, just like shopping on Amazon.