Consumer pre-approval for motor finance is becoming increasingly important as the industry shifts toward risk-based pricing, according to fintech iVendi.
James Tew, iVendi’s CEO, believes that while many non-captive lenders will be adopting risk-based pricing by the end of the year, it risks being unfair to consumers without the proper technological solutions in place.
“Fixed-rate motor finance already has its challenges, with around half of applicants being declined, which can leave a mark on their credit file,” Tew explained.
“But with risk-based pricing, even the advantage of knowing a deposit and monthly payment upfront disappears. Consumers often only see indicative rates, meaning they could decline an offer if it’s too costly, but still face a negative impact on their credit score.”
Tew suggests that the solution lies in two key developments: the widespread adoption of pre-approval technology and the use of multi-lender motor finance panels by dealerships.
Pre-approval technology uses a soft credit search, avoiding negative credit impacts and providing consumers with clear monthly payments and interest rates before they formally apply.
“This is a significant improvement for customer outcomes,” Tew said. “It allows lenders and motor retailers to meet their Consumer Duty obligations under the FCA’s Principle 12, ensuring fairness and transparency in finance options.”
Additionally, Tew advocates a multi-lender approach, which offers consumers a clearer comparison of available finance options and increases the chances of finding a suitable deal.
“Dealers using multi-lender systems tend to have higher motor finance penetration because they can meet a wider range of consumer needs,” he noted. “This approach benefits not only consumers but also lenders and dealers by improving efficiency and boosting finance sales.”