Every new year brings changes to the ways that businesses operate. 2019 is no exception when it comes to change, especially when it comes to the question, “How does auto financing work?”. Shifting consumer habits in automotive auto financing and car dealer world! This article will discuss some of the changes 2019 will bring to auto financing, but first, here is an overview of auto financing itself.

What is auto financing?

The basic meaning of auto finance or auto financing is when a consumer buys a vehicle and takes out an auto loan from a lender. This enables the consumer to pay off the cost of the car with a monthly payment, plus interest, over a designated period of time. The down payment, the price of the vehicle, and the consumer’s income are important factors that determine what kind of loan a lender will offer. Having a poor credit score or a bad credit rating could affect a consumer’s ability to secure a car loan. Car dealers and automotive businesses now offer many options in regard to auto financing. 

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What is a good auto loan rate?

Rates change constantly, and different financial institutions offer different interest rates and loan terms. It’s always best for consumers to shop around to find the lowest auto loan interest rates. Examples of auto loan vendors include the following:

Car Dealerships

Getting your auto loan at the same dealership where you’re buying or leasing a car is super convenient because you can usually do everything on the same day at the same place. Loans at dealerships are usually offered through a third-party lender, but sometimes the car manufacturer itself will offer low-interest loans through the dealer’s finance department.

Car Manufacturers

A special financing deal may be offered at the dealership by the actual manufacturer of the car you’re buying or leasing. If you’ve already been pre-approved for a loan from a bank or credit union, ask the dealership’s finance manager if the manufacturer has an interest rate lower than what you’ve been offered. Chances are, the finance manager will ask about your loan needs during your meeting and offer competitive alternatives. Again, the convenience factor comes into play since you’re already at the dealership.

Banks

Getting a bank loan for a car is pretty easy. You can do that in person with a finance officer or online. Pre-approval from your bank lets you know how much you can afford before going car shopping. Banks sometimes offer low rates and shorter pay-off terms.

Credit Unions

Credit unions are very similar to a bank in many ways, except they’re not owned by major financial institutions. Instead, they’re non-profit businesses that refer to their customers as “members” in order to offer more personalized service than a bank.

You might be asking, “What is the best credit union auto loans?” Well, that’s hard to answer. Most credit unions offer pretty similarly competitive rates. The credit union on the corner might offer 3.38% for a 72-month loan while the one across the street might offer 3.30% for the same loan. With credit unions, there is a good chance of getting a lower interest rate than a bank, but there may be limited choices as to the length of pay off terms.

Online Auto Financing

Online auto financing is growing in popularity because A) online auto loan lenders may offer lower interest rates than banks and credit unions, and B) everything, from filling out the application to using an online auto loan calculator to determine the amount, interest rate, and term period, can all be done from your computer or phone.

Changes to Auto Financing in 2019

1. Millennial Purchasing Habits

It’s true that many millennials only use ridesharing services these days, but there are still plenty of millennials out there who like the convenience of owning their own car. They just use modern technology more than other demographics to shop for vehicles.

• Millennials, who are mostly first-time car buyers, do most of their car research online.
• They tend to engage in price negotiations with car dealer internet sales departments via email or texting, instead of in person or over the phone.
• This is why in 2019, lenders will offer more mobile apps to make auto financing easier for the busy millennial lifestyle, offering payment due to push notifications and online account tracking.

2. Cloud Lending Solutions

2019 will see an increase in cloud-based platforms for instant payments, managing documents and checking the status of loans.

• Luckily, the digital cloud is “open for business” 24/7/365. You won’t have to wait on an uncomfortable bank lobby couch for an employee to come out of their cubicle to help you.
• The use of digital technology will simplify and speed up the loan application process by allowing payments, approvals, and customer service help to be instantaneous.
• Expensive shipping costs and the time delay of sending thick, paper documents to lenders for processing are removed from the loan process.

3. Subscription Based Models

Car subscription services, aka Cars as a Service (CaaS), are becoming more and more popular. Dealers like them because drivers pay a monthly subscription fee, usually through a convenient subscription-based app, to rent various kinds of cars during the rental period. Rideshare drivers like car subscriptions as they offer numerous short-term transportation solutions that are alternatives to buying or leasing a car for ridesharing or personal use.

• Subscription services let drivers swap out one vehicle for another during the rental period, creating what is known as “flexible ownership.”
• Dealers can turn subscriptions into sales by offering rent to own incentives like allowing rideshare drivers to put a percentage of their earnings towards a down payment on the car they’re renting. HyreCar provides rent-to-own vehicles, a feature we’ll discuss in an upcoming section of this blog.

4. Connected Cars

Currently, 78 million cars are connected to the web. By 2021, 98% of new vehicles will be internet connected cars. Connected car technology is now the standard in most newer model cars. It provides on-demand services such as navigation assistance, roadside assistance, and traffic warnings, voice-activated cell phone features, and connection to infotainment platforms (satellite radio, podcasts, etc). The constantly changing features that connected cars offer to drivers, such as mobile app payments and internet shopping are changing the world of automotive financing.

• Onboard technology that automatically updates vehicle software systems and driving performance can actually increase a car’s value after its initial purchase. This could also increase monthly payments to the dealer that sold it to the owner.
• Lenders may be able to analyze data from a connected vehicle’s OS to create a customized leasing finance plan based on a driver’s particular needs.
• Push notifications could also be sent to the driver through the car’s OS when mileage is close to exceeding the lease’s agreed upon limit or when a payment is coming due.

5. Ownership Models and Desires

Research is proving that millennials, once labeled a non-car owning,  rideshare-obsessed, scooter-sharing generation, are actually in the market for buying and owning their own vehicles. Why? A possible reason is that connected car technology allows this generation to interact with their world of instant communication and the on-demand economy from the comfort of their own car. Therefore, auto financing is changing to adapt to the millennial lifestyle.

• According to TransUnion, 21 to 34-year-old millennial demographic consumers are taking out car loans over 20% more than the Generation X demographic did at that same age in the 1980s and 1990s.
• Lenders offering longer-term loans, sometimes up to 7 years, are being offered to attract younger car buyers who haven’t yet reached their earning potential.
• Younger drivers want cars that are fully connected to technology, including safety features that make them feel comfortable and secure on the road.
• Sales of cars to millennial drivers are up because they use car shopping mobile apps that let them research purchase, and finance a car from their phone.

6. Rental Car Financing and Rent-to-Own Financing

HyreCar offers rental programs to rideshare drivers that feature rideshare insurance and a vast selection of quality vehicles to choose from. HyreCar also offers no commitment contracts to drivers, meaning they have the freedom to rent the vehicle of their choice for as long as they want it.

• HyreCar teams with participating dealerships to offer rent to own programs for rideshare drivers. 
• Drivers use a percentage of their monthly rideshare income towards a down payment on the car they’re renting.
• This results in lower monthly payments and financing after about six months, putting rideshare drivers on the road to vehicle ownership.

Conclusion:

The above 6 suggestions should help lenders keep pace with the ever-changing car selling and car financing industries. Other possibilities include working with value-seeking consumers by offering lower interest rates, flexible loan payments, and rewards for maintaining good credit. Speeding up the long, drawn-out, complicated process of applying and approving loans by offering more online solutions would help as well. No matter what changes occur, using the most up-to-date technologies to assist customers with their loans, while adding a friendly, personal touch by discussing financing options with them, will never go out of style.