Alternative deal structures — in which lenders can offer potential borrowers with multiple finance options in response to a single credit request — are becoming more prominent as borrowers continue to seek instant credit decisions, said Scott Hendriks, director of product management for auto originations at Fiserv.
“There are many options available to customers in the dealer finance world,” Hendriks said during Episode 5 of The Auto Finance Roadmap. “The idea of an alternative deal structure is the ability to give the borrower at the point of decision all things available beyond just the request they put through or options they know are available.”
Over the last five to six years, the purchase of the vehicle has moved online, and now the success the industry sees on the sales side is migrating to finance, he added. Consumers are looking for more transparency, more finance options, and borders are not even an issue anymore — borrowers can order a car from several states away. This is “putting pressure on lenders to provide an online experience that mimics their previous experience in the dealership,” he said.
Alternative deal structures don’t just benefit the consumer though by offering them more options and transparency, Hendriks said, these structures can also improve “book-to-look” ratios — the percentage of approved deals that are booked as loans.
“Restructuring those deals to put the customer into a structure that is less risky for the lender actually is better for the customer because it gives them a better sense that they can afford that particular payment and [helps them] budget,” Hendriks said. “That builds trust between the borrower and the lender, and that will help lead those borrowers to that lender not only for that given application they are trying to push through but also for potential future financing options.”