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What Is Dealer Financing? Dealer financing allows retailers to provide loans or financing options to their customers. Also referred to as indirect financing, dealer finance involves acquiring commercial loans for a lower interest rate and then selling those loans to the customers for a profit. This loan is again sold back by the dealers to a bank/third-party institution at a discount. Once the dealer sells off the loan, the bank or lending institution now becomes the exclusive collector of principal & interest from borrowers. After a lending slowdown due to the Covid-19 pandemic in 2020, dealer finance has been slowly emerging as a funding avenue that allows borrowers to access funds easily from retailers and enables the latter to profit from the entire proposition. What Are The Benefits Of Dealer Finance? Dealer finance can be a win-win situation for both the dealer and the customer. Dealer finance works due to the following reasons: Saves time: It saves customers the time and trouble of having to approach a separate lending organization before procuring the product. Helps Customers with Low Credit Scores: Sometimes customers with insufficient credit scores are unable to secure loans independently. They may also fail to meet stringent eligibility criteria and therefore may be unable to obtain a business loan directly from a traditional lender. Dealer financing can help by sponsoring these loans and enabling the customer to complete the transaction by paying a slightly higher interest rate. Customers thus have the opportunity to purchase costly items in-store, which might otherwise be unaffordable for them. Helps Boost Revenue: Dealer finance also increases revenue in two ways – sales and interest income. Enhances Customer Experience: Additionally, improving customer loyalty and profits by offering better customer services makes dealer financing work more effectively. The benefits of dealer financing at the point of sale include: Business Growth: When you offer financing at the point of sale, your business profits. A study showed that the average order increased by 75% in value when a business offered to finance with a dealer or bank. Customers also took advantage of the existing financing offers to buy more. Boost in Revenue: A recent study found that businesses providing financing options experienced a 32% increase in sales. Revenue increased due to higher rates of interest charged from the customers, as well as increased sales from new customers who were now able to afford the product. How Does Dealer Financing Work? A borrower submits a credit application to a dealer. The dealer circulates the credit application and other documents within its lending network. Borrowers can then decide which lender best suits their needs based on the various lenders' charges. Many dealers extend financial aid to borrowers who would not be able to obtain credits on their own. Dealers allow customers to receive funding more easily and conveniently, which is likely to increase their sales. Furthermore, when a retailer uses dealer financing, the financial network of the dealer provides loans based on the credit profile of the borrower, and it is the third-party financial institution or bank that determines all related terms, rates, and collects payments from borrowers. Lenders quote the buy rate (interest rate) to dealers, and dealers can charge higher interest rates from their borrowers. Further, dealer finance also provides loans to high-risk customers and charges them relatively high interest rates. Dealers may also repossess the products/items of borrowers who fail to pay on time. Conclusion Dealer financing, an indirect loan process, allows dealers to finance the purchase of cars from their inventory and then sell them to consumers. Dealer financing can speed up the sales process for dealers, giving car buyers with low credit scores an opportunity to secure financing with dealer financing and other bank products; these include customized dealer finance for dealers and franchises. Such financing can aid businesses in the management of their supply chains by furnishing financial assistance when needed. Mynd Fintech provides attractive business loans to assist dealers in managing their cash flow better. With flexible repayment tenures from 12 to 60 months and a unique Flexi Loan facility, financing dealerships has never been easier. You can get attractive dealer finance rates, making your loan affordable. Most importantly, your loan application will be approved instantly with pre-approved offers. You can also check out various loan options suited to your needs on Mynd Fintech.