In this article, we look at how car dealerships can offer car finance options to their customers.
Increasingly, people are buying cars on finance, in one form or another. During 2019, over 90% of privately purchased cars bought were paid for through sort of finance deal.
In order to offer finance options on your vehicles, you must obtain a consumer credit license from the financial regulator, namely, the Financial Conduct Authority.
1. Applying for the consumer credit license
If your primary business activity is selling vehicles as a dealership and you wish to refer customers to lenders who wish to finance the purchase of the vehicle, you will require a limited permission consumer credit license. The process for obtaining the limited permission license is shorter whilst the application fee is much lower. If you are not a car dealer and your main activity will be referring car finance leads to lenders, then you must apply for the full permission version of the consumer credit license. You must apply to the Financial Conduct Authority and obtain approval for the consumer credit license.
2. Completing the license application
In your application form you will be required to provide the following information:
- company business details
- future plans and details of your business
- your financial forecasts
- details of what your business does
- details of how you will treat customers fairly
- description of your systems and controls
- your compliance arrangements including a compliance monitoring plan
- details of your approved persons and controllers (shareholders)
3. How long it takes to obtain your license
You should allow 1-2 months for the limited permission consumer credit license and around 3 months for the full permission version.
4. Choosing lenders
For most car dealerships, finance is offered by working with lenders, such as Zuto, Close Brothers, and Motor Novo. So, for example, this involves entering into a commercial relationship with a lender. They will provide you access to their software in order to submit customer finance enquiries. With most lenders, for every customer you refer to the lender who ends up being accepted for finance and agrees to proceed, you will be paid a commission for the referral. Commission rates can vary from 2%-5%. You may wish to work with a number of lenders who cater to different types of borrowers. For example, you may wish to work with a lender who focuses on lending to borrowers with a good credit history profile, and another lender who focuses on lending to people with less than perfect credit history or lower income.
5. Managing your business in a compliant manner
In order to maintain your consumer credit license, you must ensure that you manage your business in a compliant manner, ensuring good conduct at all times. For example, you must ensure that any financial promotions or marketing material is fair, accurate and not misleading to your customers. Similarly, you must treat your customers fairly. You must demonstrate that this is at the heart of your business.