Part 2: Benefits for customers

There are two main ways of buying a new car: in cash (paying the total cost in full), or with car financing. Although it might seem like common sense to just pay upfront with cash than taking out a loan, it’s not always the case. Even if you have some cash in reserve, taking out a competitive auto loan can have a lot of advantages which include:

Most of the time your customer will say that they are paying from their cash savings, they are using another method of borrowing to pay you for the car (usually from a line of credit).
Not taking funds from a line of credit or savings account gives a little liquid flexibility and leaves room for an emergency fund to draw on.
Taking out a car loan spreads the payments over a longer term, increasing the chances to buy a newer/better car instead of being restricted to the cash available.
May improve credit score. Signing off on a loan that can be paid off is a great way to watch your customers credit score grow. Adding an auto loan can diversify the credit mix and slightly boost the credit score.
With financing, your customers will own 100% of the vehicle at the end of the repayment term, yet they will still have the cash sitting unspent in their account or leave a credit line untouched, just waiting for a rainy day.
The majority of auto-loans in Canada are open with a fixed rate while credit lines have variable rates. Cars are a depreciating asset, and most people pay only the minimum payments, which leaves the customer in a negative balance.

In summary, the auto dealer ALWAYS benefits from a client who finances their auto purchase. Dealers who also know how to explain the benefits of financing for that customer, will make move sales, and have a higher profit per sale.

In the last part of this series we will explain how to sale financing to customers.

Gonzalez, N. & Risman, M (2023, November 17). Why to finance vehicles instead of selling for cash? Part 2. Ontario Underwriters Newsletters. https://on-u.org/newsletters/