Vehicles are lasting longer than ever. The most recent study conducted by IHS Markit in 2021 said the average age of a personal vehicle in the United States is now 12.1 years. In 2002, it was 9.6 years. And if the Federal Highway Administration says the average number of miles driven in the U.S. annually is 14,263, it’s safe to assume there are a lot of vehicles out there with close to 200,000 miles on their odometers.
Vehicles are getting more expensive to purchase, but potentially even more expensive to maintain, yet are lasting longer. Research has shown that Americans can’t readily pay for a surprise $500, car-related expense. They need access to easy, fast, and convenient financing solutions.
While many consumers in the U.S. use credit cards to pay for everyday expenses, they need this revolving credit to have as much spending flexibility as possible. Since the average balance on a credit card, according to Bank Rate, is $5,525, most consumers are open to and likewise appreciate additional financing solutions.
For today’s shop owners and service providers, it is imperative to explore alternative financing solutions. With alternative financing solutions, products can be rented, or in other words, leased to a customer. At the end of the term, ownership is transferred to that customer. How this option works is simple. A consumer in need of automotive repair or tire replacement is approved for alternative financing solutions terms. (While these applications are approved at a higher rate than credit applications, it can be the “difference maker” between a closed sale or a lost sale or a satisfied customer or an unsatisfied customer.) The overall cost of the repair and loan terms are figured out and the consumer is presented with a monthly payment amount that can be automatically deducted from their bank account. Payments are aligned with the person’s payday, so the process becomes as stress-free as possible when it comes to remembering when to pay or if there will be money in the account at the time of the withdrawal.
Another major advantage with alternative financing solutions is the consumer won’t have to wait to save up for repairs, which could accelerate wear & tear damage to the vehicle. Additionally, delaying parts and service can put the driver and other passengers in unsafe situations, such as with bald tires or broken suspension parts. Alternative financing solutions provides peace of mind by allowing the repairs to be done today with manageable and timely payment solutions, without having to take up space on high-interest credit cards.
For shop owners, this is an important offering that can bring more revenue at better gross profit margins. Instead of removing needed services from an estimate or playing the discount game, the shop can provide a simple and reliable payment method to their customers that won’t break customers’ bank. In addition, the shop owner doesn’t have to worry about their customer defaulting on payments, as alternative financing solutions creates an arrangement between the consumer and the financing provider. Shop owners are funded quickly. For the consumer, payments are set up for auto withdrawal and aligned with the customer’s payday. For the merchant or shop owner, fees can be similar (or lower) to that of credit cards, so the shop owner gets a satisfied customer and gets the work done today at the necessary proper gross margin.
The needs of consumers are changing. Just a few years ago, the thought of more than four tiers of tire brands was unthinkable. In the upcoming year, the Federal reserve will be raising interest rates at an unprecedented rate, making traditional credit or cash loans far more expensive. Today’s customer not only wants flexible options in the services and tires they buy, but also in how it pays for them.
Alternative financing solutions are an attractive option for many consumers and a growing number of merchants. And it is one of the fastest-growing segments in financing. Dealerships and repair shops need to make sure they remove barriers to the consumer’s ability to find affordable, flexible payment options - helping them get to work, drop off their kids at practice and reliably get around town. The shop that can help them make the right decision for their circumstances will be the shop that earns their repeat business. With all of this in mind, it is critical to explore alternative financing solutions, beyond just cash and credit cards - enabling you to close every customer that comes in the door.
For more information, click here
This article is part of the SNAP! Finance series. As more articles are released, they can be found below: