Dealer Financing in India - CredAvenue

What Is Dealer Financing?

Dealer financing is a loan or financing option that retailers offer to their customers. Also referred to as an indirect loan, dealer financing means a type of credit facility wherein retailers issue funds to their customers. Dealer financing 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 the lending institution now becomes the exclusive collector of principal & interest from borrowers. 

After the slowdown in the lending market due to the Covid-19 pandemic in 2020, dealer financing is slowly emerging as a feasible funding avenue. It has not only allowed borrowers to access funds easily from retailers but enabled the latter to profit from the entire proposition.

 

What Are The Benefits Of Dealer Financing?

Dealer financing is a win-win liaison for the dealer and the borrower/customer. Dealer financing works due to the following reasons:

  • Saves Time: It saves the time and effort of the customers of going to a separate lender before heading for the purchase. 
  • Helps Customers with Low Credit Scores: Sometimes, the customer might lack a good enough credit score to facilitate a loan independently. Also, due to stringent eligibility norms, they often face difficulty securing loans directly from traditional lenders. Dealer financing can help by sponsoring such loans where the customer pays a slightly higher interest rate. Customers thus have the opportunity to buy big-ticket items in-store, which otherwise would be difficult for them to acquire.
  • Helps Boost Revenue: Dealer financing also helps boost revenue in two ways – the sales and the interest.
  • Enhances Customer Experience: Further, improving customer loyalty and profits by offering better customer services also makes dealer financing work.

 

The benefits of dealer financing at the point of sale are the following:

  1. Business Growth: Offering financing at the point of sale can improve the amount of business. A study concluded that the average order increases 75% in value when a business offers to finance with a dealer or bank. Also, customers take advantage of the existing financing offers to buy more. 
  2. Boost in Revenue: A study has found that businesses providing financing options had 32% increases in sales. Revenue increases due to increased sales and higher rates of interest charged from the customers. 

 

 

How Does Dealer Financing Work?

Dealer financing in India involves three parties – the borrower, the dealer and the bank/ financial institution. The following steps explain how dealer financing works

 

Step 1. A borrower/customer submits a credit application to the dealer. The dealer then circulates the customer’s credit application and other requisite documents within its lending network.

Step 2. Borrowers are then offered options from which they can choose lenders by comparing various lenders by tallying charges and selecting the best one.

Step 3. Dealers benefit substantially by extending financial aid to borrowers who otherwise would not be able to avail of credits on their own. Since dealers make obtaining funding more effortless and straightforward, they increase their sales. 

Step 4. Also, with dealer financing, a retailer’s financial network provides loans based on a borrower’s credit profile. And it is the third-party financial institution or bank that 

determines all related terms, rates and collects the payments from borrowers.

Step 5. Lenders quote the buy rate (interest rate) to the dealer to finance a loan, and dealers are free to charge higher interest rates from their borrowers.

Step 6. Further, dealer finance schemes also provide loans to high-risk customers, and the interest rate charged is also relatively high. Additionally, dealers can also claim the sold products/items from borrowers if they miss any payment.

 

When Should Dealership Offer Dealer Financing?

Businesses offering high-value items should offer Dealer financing. As dealers often work with various third-party lenders, they can help borrowers/customers obtain instalment financing to buy such high-end items. Due to the dealer’s association with an extensive network of lenders, these dealers often have the power to get credit approval from third-party financial institutions/banks for customers who would not otherwise qualify to avail of the loan. 

Through dealer financing, a securities and finance dealer can sell more items and benefit from the increased interest rate profits. Car dealers with in-house financing have found this business model extremely profitable. For example, independent car dealer financing is the most common form of point-of-sale dealer financing. High-end music systems or entertainment equipment dealers might also benefit more from dealer financing than car loan, and it is also a great idea to boost sales.

 

 

Why is the Dealer Financing Platform for You?

Dealer financing can prove to be an incredibly excellent tool for business. Dealer financing in India can benefit companies and customers if done the right way. 

YubiFlow by Yubi is an end-to-end Trade and Supply Chain platform. It is the most advanced Trade and Supply chain Finance platform having Dealer Finance Solutions including Purchase order finance, Purchase invoice discounting & purchase bill discounting.

Dealer financing is a straightforward way to increase the speed of sales and improve your customer experience. If you are a dealer and considering dealer financing through a lending partner, you may visit CreadAvenue’s YubiFlow platform to explore the financing options that may best fit your business.

 

 

FAQs: 

 

Q: Does Dealer Financing use a Loan Platform?

A:  Yes, Yubi’s loan platform helps businesses offer dealer financing options.

 

Q. How is Dealer financing offered?

A: Dealer financing is offered by getting a commercial loan or partnering directly with a lender, such as a bank. With a bank, dealers buy a loan from them and then sell it to the customer, and it is the most common form of dealer financing.

 

Q: What businesses commonly use Dealer Financing?

A: Dealer financing is prevalent in an auto dealership. Independent car dealer financing is considered a very profitable business. High-end music systems or entertainment equipment dealers might also benefit from dealer financing, and it is also a great idea to boost sales.

 

Q: How do borrowers benefit from Dealer Financing?

A: Although dealer financing in India is sometimes more expensive, the absence of stringent eligibility requirements enables borrowers to avail themselves of the credits with ease. Further, borrowers with low credit scores can also benefit from dealer channel financing for purchasing high-priced items.

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