Putting you in the driving seat with rate-for-risk finance

In this report, we cover the move from flat rate interest rates to rate-for-risk, what this means for lenders and dealerships, and what's driving this change.

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The market in automotive finance is entering a new era

The widespread practice of a dealership charging every car-finance customer the same rate of interest is dying out. It may be simple, but it’s becoming risky and uncompetitive in today’s fast-changing marketplace.

With rate-for-risk financing, the interest rate charged changes in line with the risk the applicant poses. It’s an approach that applicants increasingly expect, as it’s available for most other types of credit such as credit cards and personal loans. And it is the one that forward-thinking businesses are moving to at pace.

Download our report “Putting you in the driving seat with rate-for-risk finance” for insights into what this means for dealerships and lenders.

What’s covered in this report?

We take a look at the variables driving the move to rate for risk, the challenges facing lenders and dealerships, and how Experian Auto Eligibility can mitigate those challenges.

Download the report now

What's driving the move to rate for risk?

From growing competition in automotive finance, to savvy customers and price consciousness, we cover the variables driving the move to rate for risk.

How we can help - introducing Experian Auto Eligibility

Experian Auto Eligibility services makes transferring to rate-for-risk finance easy for lenders.

Challenges for lenders and dealerships

92% of customers need finance packages to buy. So providing finance in a way that gives a good customer experience and doesn't waste sales time is crucial.

How Experian Auto Eligibility works

Customers can use Experian Auto Eligibility when they arrive at your dealership, or from the comfort of home. It's an easy 1-2-3 process.

Report highlights include:

Thumbnail of Auto Eligibility whitepaper

Perceived challenges with rate-for-risk
Dealers are concerned that the customer and sales team will not know what the exact rate of interest will be until a full credit application is made, at the end of a sales process.
Improving your sales experience with rate-for-risk
Challenges can be overcome by pairing rate-for-risk with pre-qualification eligibility checks at the start of the buying process.
How to use Experian Auto Eligibility in the way that best suits you as a lender
Experian Auto Eligibility can be used in a way that suits your sales model best. Online or in showroom.

A sneak peek into:

Putting you in the driving seat with rate-for-risk finance

What’s driving the move to rate-for-risk?

The fairer-finance agenda

The Financial Conduct Authority’s Treating Customer Fairly agenda – and its new Customer Duty – demand that customers get fair outcomes in car finance.

Rate-for-risk financing clearly shows the regulator that a dealer is aligned with these principles. Customers get a rate (or range of rates to choose from) tailored to them. They get fair and justifiable terms that reflects what they can truly afford. Using rate-for-risk clearly shows that a lender is meeting the requirements of the FCA’s Customer Duty guidelines.

Woman looking at a car in a showroom

A revolution in customer expectations

The consultants EY wrote in 2021 that “auto retailers have been facing a decade’s worth of change in consumer behaviour” in a matter of months (‘How successful UK auto retailers are reshaping for the future’, 2021).

Consumers increasingly demand a personalised buying experience – and are less prepared to ‘one size fits all’ approach to automotive finance.

When considering other credit products, they can check their eligibility and browse the rates they’d get before they apply, without a hard credit check which would appear on their credit report. They want the same in automotive finance. Many consumers now want the same experience when they apply for a loan to buy a car.

Customers getting more savvy and price-conscious

The cost-of-living crisis means increasingly cost-conscious consumers have less to spend. They are becoming more aware and informed about the options available to them, and expect well-priced, convenient, personalised financing options. Dealers and Lenders will need to work harder and smarter to maintain market share. 46% of them expect the cost-of-living crisis to have a ‘significant’ impact on their business, and rate-for-risk provides a way of offering hard-pressed customers a more attractive deal.

Growing competition in automotive finance

Buyers already have the option of using direct-to-consumer finance options with compellingly low rates. More of these products are likely to appear in the coming year, including personal contract purchase and personal contract hire, and are likely to become easier to access. Customers can shop around for finance more easily than ever before, threatening the competitiveness of flat rates.