No fees. No driving from bank to bank. Apply in minutes. Choose the loan that is best for you, without ever leaving your chair.
Those are sales pitches from Internet auto lenders, peddling direct loans to consumers. The offers sound tempting, but their programs so far pose little if any threat to dealers.
A growing number of auto lenders are popping up on the Internet with promises of convenience and low interest rates. Several compete with dealers for finance business by providing direct loans to consumers.
The ability to apply for a loan without leaving home or office, to secure competitive terms and visit a dealership preapproved, sounds irresistible. But experts say most consumers are not taking the bait.
'Even when customers go online and get approved for a loan, when they go to the dealership there is a 50 percent drop-out rate,' says James Punishill, an analyst for the money and technology group of Forrester Research Inc., a Cambridge, Mass., research firm that tracks Internet trends.
'They get the financing from the dealer anyway. If the dealer offers similar terms, customers don't care. They just want to buy a car.'
Customers have no loyalty to the online lender that already extended them credit, he says.
At least for now, dealers have an edge when it comes to snagging the finance business. Dealers have a captive buyer, because people have to go to dealerships to buy cars, Punishill points out.
And other factors give dealers a hold on the finance business, despite the rise of direct loans online. Many customers are still skittish about Internet security and are uncomfortable with online credit applications. A good number of car shoppers also have blemished credit histories that would make it difficult to get them past the automated credit scoring systems used to approve online credit applications. The low rates advertised on the Internet are only for the most creditworthy customers.
Although money does not grow on trees, some online lenders sound like the next best thing because they provide quick, convenient access to car loans.
One Web site is called lendingtree.com. LendingTree Inc., of Charlotte, N.C., has agreements with dozens of lenders to provide home mortgages and car loans on the Net. Visitors to the site submit a credit application online and get loan offers from up to four lenders within 48 hours. The customer chooses the lender with the best terms.
Then there is PeopleFirst Finance, a San Diego finance company that began writing loans when it cranked up its Internet business in August 1997. The company says it has 'provided its service to thousands of individuals.'
It promises great rates, no down payment and no application fee. 'Get a credit decision in minutes and have a blank check by tomorrow!' says PeopleFirst at peoplefirst.com.
Rate.Net, at www.rate.net, is a research service that rates home mortgages and auto loans. A customer keys in his or her state of residence and asks for the lenders with the top 10 rates in the area and a chart appears listing lenders, their retail interest rate on a 60-month new-car loan and their rankings. The customer can click on the lender's name for the chance to e-mail the lender for more information.
DaimlerChrysler Financial Services North America operates a direct loan site through the debis Financial Services Affinity Services Division. The division serves brands other than Chrysler and Mercedes, similar in concept to the Primus subsidiary of Ford Motor Credit Co.
The site, Giggo.com, offers financing on all makes, and promises low interest rates to the most creditworthy customers. The site has: a loan calculator to help customers figure their monthly payments; make and model information; rate comparisons; vehicle price negotiating tips; plus the chance for customers to view their credit reports.
Giggo.com is still in the pilot phase, says Brian Reed, managing director of the division. But Reed sees tremendous potential in the online loan business. The site is going to sign up more lenders to offer direct loans. 'We've done focus groups,' says Reed. 'All signs show that consumers like the idea of being able to finance a car via the Internet (without setting foot in a dealership).'
No threat yet
Despite the tempting offers, there are too few direct online lenders to pose much threat to dealers, says Punishill of Forrester. 'We surveyed 50 top banks,' he says. 'Most are busy tackling basic issues such as providing customers with access to their checking accounts online. Their (online) financing products come second.'
Many customers also are just getting their feet wet. Often, they are uncomfortable sharing personal finance information on the Internet. Eighty-one percent of Internet users are concerned about threats to their personal privacy while online, according to a recent survey by Louis Harris and Associates and Dr. Alan Westin of Columbia University.
The research also shows that consumers are reluctant to provide personal information online. Seventy-nine percent of Web site visitors who have been asked to provide information have declined.
'The truth of the matter is that customers are still coming in and buying their cars in person,' says Jim Ziegler, president of Ziegler Supersystems, an Atlanta sales consulting firm.
The online direct loan business has not even appeared on the radar screen. Forrester Research estimates that only 0.2 percent of all auto loans written were initiated on the Internet.
'We have not had anybody come in and say 'I have got a loan through lending.com,' ' says Corey Shaker, vice president of Hometown Auto Retailers Inc., a publicly held dealership group in Watertown, Conn.
Some experts say the biggest hurdle for online financing is the subprime customer. Many customers have some blemishes on their credit reports that cause them to hit snags when they try to obtain financing on the Internet.
'What's unique about the F&I business is that it is a people business,' says Laurie DiGiovanni, president of Performance Systems, an Irvine, Calif., training firm for dealership finance managers.
'Not a lot of customers are able to process a loan over the Internet given that credit has declined so much. Customers often need a finance manager to sell the loan. They need written documentation and someone to tell their story. That's what it takes to get a loan bought.'
There also is the matter of the trade-in. Many customers owe more on their trade-ins than the vehicle is worth. 'Probably 70 percent to 80 percent of the people who buy cars have trade-ins,' says Shaker of Hometown. 'They often have payoffs on those trade-ins. How do you deal with that online? The computer is not going to take your trade-in.'
Some experts believe the Internet so far has had only a positive impact on the dealer's finance business. Many of the online credit applications are not firm offers of credit - just preapprovals.
'Customers go into the dealership with preapproved credit' so the dealership knows the customer is a qualified buyer, says Dave Robertson, executive director of the Association of Finance & Insurance Professionals, a Bedford, Texas, organization that tests and certifies dealership finance managers, with a heavy emphasis on business ethics.
After browsing sites such as the General Motors Acceptance Corp. Web site, some customers learn more about the products and services available at the dealership. 'They come into the dealership presold on many things the dealer has to offer,' says Robertson.
Still, other observers see storm clouds coming. Eventually, direct lenders could chip away at dealers' finance profits as online loans become more available and customers become more comfortable with the transaction.
Forrester Research predicts that $21.4 billion in auto loans will be initiated online by 2003, almost 5 percent of all auto loans. After 2003, online lending is expected to skyrocket, says Punishill.
In time, dealers could lose the upper hand in the finance business, said Chris Denove, director of consulting operations for Agoura Hills, Calif., consulting firm J.D. Power and Associates. For years, dealers have been the most convenient source of car financing for customers who did not want to shop bank after bank for competitive terms. But the ability to shop from home combined with a low interest rate will tip the scale in favor of online direct lenders, says Denove.
Denove, who has done research on Internet marketing for J.D. Power, just financed his own car purchase through a direct lender online. 'There is an increasing number of people who are willing to actually consummate transactions of all kinds over the Internet,' he says. 'They are becoming less concerned about the privacy issue or are deciding the rewards of e-commerce outweigh the risk.'