Explained: Auto and Car Dealer Finance
Vehicles are an everyday essential for most consumers in many markets. Motor finance for cars, motorbikes and LCVs are one of the fastest growing consumer products, yet there’s still limited understanding of how it works, and what products auto dealers can have access to for their customers. We’ve summarised 5 appropriate finance structures for car dealers.
5 finance products for car dealers
At Trade Finance Global, we help auto dealers access different finance products for their customers, depending on the vehicle they want, whether they want ownership afterwards, and the typical payment amounts they wish to make.
Hire Purchase Agreements (HPA)
A hire purchase agreement (HPA) is probably one of the most simple forms of consumer finance for those purchasing most types of vehicles, including cars, motorcycles and LCVs. Hire Purchase allows the consumer to pay a small deposit (normally 10% of the vehicle’s value) and then pay off the value of the car over the period of 1 – 5 years (12 – 60 months).
Car dealers and brokers are eligible for this to then offer customers.
Customers don’t own the vehicle until the final payment is made, which means if they get into financial difficulty, the financier can take the vehicle away.
There are generally two types of HPA; Option to Purchase (OTP), which entitles the customer full legal ownership of the vehicle at the end of the contract, or to hand the vehicle back to the financier.
Conditional Sale allows the customer to own the vehicle at the end of an agreed length of time. Conditional Sale for vehicles is fairly simple – allowing fixed contracts over an agreed period of time, and can be flexible given the customer’s budget requirements.
As with most vehicle finance contracts, an upfront 10% deposit is often required.
Personal Contract Purchase
Personal Contract Purchase (PCP) is one of the most popular types of car dealer finance for customers. PCP acts a bit like renting a car for a duration of 1 – 5 years.
During a PCP contract, customers will need to pass a credit check, demonstrating their ability to repay each month, and then pay a deposit for the vehicle they wish to purchase (this is normally 10% of the value).
Once agreed, the customer can use the vehicle but will make regular payments to use it under agreed contract terms (e.g. mileage restrictions).
As the duration of the contract comes to an end, the customer can have the option to purchase and legally own the vehicle it for a one off ‘balloon payment’, hand over the car without paying anything more, or part-exchange it for a new vehicle and use any value leftover in the old vehicle.
LCV Finance is available to buyers of commercial vehicle. Commercial vehicles include trucks and vans to luxury and customised vehicles.
As with the above financing options, LCV vehicles can fall under the bracket of hire purchase agreements, or conditional sale, for up to 10 years.
Car Finance for Ridesharers and Drivers
Many consumers are looking to rent cars for the purpose of becoming Lyft or Uber drivers, such as HyreCar. It’s important to also check your Uber vehicle requirements for insurance and what’s needed.
Rather than using longer term Hire Purchase Agreements or Conditional Purchase, rental car finance allows customers to rent cars for a short period of time.
Motor Dealer finance for cars, motorcycles and LCVs are always popular for consumers, given that they’re so essential in many people’s lives. For dealers or companies with consumers purchasing vehicles off them, offering finance can be a great opportunity to add value to your proposition.