A credit-first approach takes the guesswork out of which vehicles your customers can really afford.
In our current world of evolving dynamics one word is starting to define the path forward for the automotive industry: that word is “affordability.”
For a while now, it’s been trendy to talk about a “credit first” approach to car buying.
Traditionally, unless a customer indicates they have credit concerns, most customers walk blindly through the sales journey selecting cars they think they can afford and that they assume they will be approved for.
A credit-first approach sees the customer securing their lending offer before they start selecting a vehicle, and there are a lot of good reasons for this approach. After all, we don’t buy a house until we know what we can afford. Why do we buy cars that way?
When a customer agrees to this path, they are put through a pre-approval process. This involves being submitted to a lender and incurring a hard hit on their credit bureau which can impact their score, and we know that’s a pain point for our increasingly credit conscious customers.
Many will even come through the door declaring “I know my score” without really even understanding the relationship between score and rate. With the limited information available to the general public on understanding credit most only know that high scores are good and inquiries are bad.
What most buyers don’t consider coming through your door is that the rate they qualify for is only one part of determining their affordability. While an impressive credit score might suggest financial reliability, it doesn’t paint a full picture.
Just as important as score, is the amount of money the lender is willing to offer. This is done by determining how much of a buyer’s monthly income is already earmarked for existing financial obligations, such as mortgages, student loans and credit card payments.
To solve the issue of credit inquiry aversion among customers, especially our prime customers, the shift towards credit-first processes is leading to the rise of credit tools.
In Canada there are two types of credit inquiries. We are all familiar with hard credit inquiries. These are the ones that we see listed on credit bureaus and are legally required to extend credit. However, the second type of credit inquiry is referred to as a “soft credit pull.” This type of credit inquiry is used to determine credit worthiness and does not impact the customer’s credit score.
What most buyers don’t consider coming through your door is that the rate they qualify for is only one part of determining their affordability. While an impressive credit score might suggest financial reliability, it doesn’t paint a full picture.
Credit tools that leverage this type of credit inquiry have been on the market for some time already, but they have been lacking in giving dealers everything they need to calculate a buyer’s true affordability.
The next evolution of this type of technology is emerging as a pre-qualification tool. More than just offering dealerships a snapshot of the customer’s credit profile, these products also perform debt service calculations to determine actual payments. Additionally, some are seamlessly integrated with trade-in tools, providing details on the customer’s equity position on their trade-in.
The importance of getting vehicle selection right for your customer, the first time, can’t be overstated.
For customers, knowing their affordability from the outset removes much of the guesswork and stress traditionally associated with car buying. Instead of being drawn to vehicles that may be out of their budget or spending hours negotiating, they can direct their attention to cars that are within their financial reach from the very beginning.
This not only saves them time but also spares them potential disappointment by ensuring that the first car that they set their heart on is one they can genuinely afford, the entire buying process becomes smoother, faster and far more satisfying.
In the ever-shifting landscape of automotive retail, staying a step ahead necessitates understanding not just the vehicles we sell, but also the financial realities of the buyers we serve.
The journey of a car purchase is one deeply rooted in emotions and aspirations. By ensuring that this journey starts with clear financial waypoints, dealers not only optimize their process but also foster trust and transparency.
As the gears of the industry continue to shift, prioritizing affordability through such innovative approaches isn’t just savvy business — it’s the cornerstone of a transformative customer experience.
