Affordability assessments are not yet compulsory in the automotive industry, like they are for other forms of credit; at least for now. That means you can decide exactly who to lend to, and on what terms, without any set guidelines from the FCA or other regulators. It sounds like great news – but is it really?

 

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Problems can arise when customers are sold finance agreements that they can’t really afford. If that happens, they will inevitably suffer as a result, whether that means experiencing some kind of stress, getting deeper into debt, or, in the worst case scenario, having their vehicle repossessed.

However, by only offering customers products and services they can afford, you can build profitable, trust-based relationships with them, win more repeat business, and enhance your corporate reputation as well.

To achieve these benefits, and provide the best experience for customers, many lenders are now using affordability assessments as part of their automotive finance application process.

The value of affordability assessments for customers

Many customers are dubious about sharing personal and financial details when purchasing a car. However, the benefits of collecting this data, and conducting effective affordability assessments, far outweigh the potential inconvenience for customers.

Firstly, helping a customer to review their incomings and outgoings can help them to make better decisions about the vehicle and financing arrangements that are best for them. It’s a way to take stock and accurately calculate disposable income available to make repayments, based on hard facts – an exercise that helps to protect customers throughout the lifespan of their loan.

Secondly, affordability assessments can help to protect customers by monitoring their changing financial circumstances over time, and ensuring that their vehicle remains affordable for them. If a customer’s circumstances change, their repayment terms could, in some cases, be renegotiated, helping to reduce stress and keep them out of financial trouble.

Thirdly, customers can be ‘pre-approved’ for appropriate financing agreements during online searches or visits to dealerships, giving them confidence that they will qualify for particular deals before they begin the application process. This dramatically improves the customer experience over current ways of working.

Maximising the value of customer relationships long term

At a strategic level, affordability assessments support beyond a quick sale and instead maximise the value of your customer relationships in the long term. By understanding and protecting customers, and providing products and services that really meet their needs, loyalty can be built and customer satisfaction increased – both critical factors for achieving sustainable growth.

To find out more about how you can put customers first with affordability assessments, contact us at automotive.feedback@uk.experian.com, download our whitepaper or visit our automotive website.