More customers willing to leave the dealership for financing, FICO survey finds

In the U.S., most car buyers arranged financing or the lease for their last vehicle through a dealership, but many plan to take a different route next time, according to FICO's latest vehicle financing survey.

FICO surveyed 2,000 people in more than nine countries who financed or leased a vehicle in the past three years. Of those respondents, 510 were U.S. customers.

In the U.S., 63 percent of customers acquired financing at a dealership in 2018, according to FICO's 2019 Consumer Survey of Vehicle Financing. That's down from 73 percent a year earlier.

For their next ride, however, 28 percent of American respondents said they plan to apply online, while 32 percent said they would visit a bank or some other financing institution. Only 40 percent said they would inquire at the dealership, according to FICO, a Silicon Valley analytics software firm known for its credit scoring model.

"There is currently a strong preference for dealership financing. This may be ripe for change," Ken Kertz, senior director and practice leader of auto and motorized vehicles at FICO, said in a statement Wednesday.

To retain customers, lenders and dealers should prioritize clarity and trust in online and in-store car buying, Kertz told Automotive News. The companies that reduce the friction in the financing process improve customer loyalty.

For instance, 38 percent of Americans would accept an instant offer to finance a vehicle if it meant avoiding extra paperwork or dealing with a bank.

"As new business models are being introduced by the lenders or some of the disrupters, consumers will have a stronger say in where and who and how they do business," Kertz said.

Dealers should monitor how customers wish to conduct financing deals, and adjust their technology investments accordingly, said Mica DuBois, senior manager of solution marketing for risk at FICO.

"Consumers are really gaining more control over the purchasing process. They're empowered, they're savvy and they're initiating the discussions," she said.

Still, only 18 percent visited a bank or other lending institution to apply for a loan on their last car purchase, and 14 percent used a preapproval offer to buy their vehicle.

Customers want to make sure they're getting the best deal, but want to make fewer choices in the process, FICO also found.

Nearly half of U.S. customers consider just one lending source before making a decision, with 47 percent weighing two or three options before buying. Only 5 percent of customers said they considered more than three lenders.

Nearly half of consumers said they negotiated a moderate amount, while 11 percent negotiated a lot. More than a third of Americans surveyed said they got an "excellent" car deal, while 53 percent said they got a good deal on their last purchase.

Meanwhile, the number of consumers acquiring vehicle financing online more than doubled last year to 13 percent, up from 5 percent in 2017.

Technology limitations and state regulations prevent online vehicle financing from becoming more widespread, Kertz said.

"There's certainly a lot of opportunity for lenders to improve the digital process," he said. "We're still seeing that the dealer is the epicenter, and customers would prefer simplicity and preapproved offers with rate subvention and incentives."

Growing industry adoption of online financing, digital retailing and e-contracting tools will likely increase the number of online transactions, Kertz said.