Why You Should Offer Alternative Financing

April 26, 2024

Whether shopping for furniture, kitchen appliances or even shoes, consumers are given payment options. So when those same consumers enter your tire dealership and you present them an invoice, many are going to expect you to offer them more than just the option of "cash, check or credit card."

Companies who offer consumer financing say those expectations are especially heightened in these days of higher prices and interest rates.

Three of those providers answered our questions and shared tips for how you should be marketing and talking to customers about these financing options: Kornerstone Living LLC, Snap Finance LLV and Synchrony LLC.

MTD: How have higher interest rates affected sales in the secondary financing market?

Jacob Knowles, sales and marketing manager, Kornerstone Living LLC: We see a definite increase in customers looking for more financing options. For secondary financing companies, rising interest rates and higher defaults are leading them to increase charges and costs to dealers. We may have higher consumer demand, but many retailers are not willing to offer typical secondary financing due to the heavy discounts ranging from 8% or more.

In response to this, Kornerstone has introduced Prime10, a groundbreaking program that is free to dealers, requires no credit check, and has no impact on their customers' credit scores. Customers who qualify can enjoy the benefits of a nominal $50 monthly fee alongside their installment for every $1,000 financed with 10 months to pay.

Curtis Howse, executive vice president and CEO, home and auto, Synchrony LLC: There is no question that affordability for all purchases is front and center for all consumers. The trends that started in early 2023 stemming from rising costs and interest rates have resulted in an increase in the number of consumers who are turning to financing options for services and auto parts, such as tires. Synchrony’s flexible financing solutions offered by our Synchrony Car Care merchant partners across the U.S. present consumers with multiple choices for monthly payment amounts depending on the size of their purchase. Synchrony’s recent Major Purchase Study shows a 5% increase in individuals opting for financing for big-ticket purchases compared to two years ago. Our research also shows that flexible financing options remain highly favored among consumers across all age groups. The breadth of Synchrony’s products to help with these purchases extends from traditional private label revolving credit cards to dynamic installment loans.

MTD: What kind of messaging should tire dealers use to show consumers they have alternative funding options?

Knowles (Kornerstone): No one likes to admit they don’t have enough to buy what they really want. It should always be ‘if you don’t want to pay the whole amount today, we have several financing options available.’ The message needs to be simple and transparent, with examples of payments and total cost for financing options. The customer experience includes not only great products and services but also the completion of financing terms. If you want your customers to come back, they must have a great ‘whole’ experience.

The Prime10 message is simple: Get what you need now, pay later for a $50 monthly fee alongside your installment for every $1,000 financed. Take up to 10 months or pay in full anytime.

An example: A $1,000 set of tires paid in one month would be $1,050 or paid over 10 months would be $1,500.

Prime10 is the ideal option for customers who want to pay over 10 months at a reasonable rate without needing credit or having an impact on their credit.

Rob Brown, head of research and insights, Snap Finance LLC: Let shoppers know that financing is available as soon as possible in the buying process. Tire dealers can use attention-grabbing point-of-purchase materials typically provided by financing providers. Inform customers about available financing at various touchpoints, from driving by a store to browsing or waiting in line.

Sales teams should be well-versed in available financing options and able to easily walk customers through the application process. Let consumers know there may be financing options for them, even if they’ve been denied financing in the past. Ensure all communication is transparent and clearly explains how the financing works, what flexibility they have in paying it off, and fully discloses all terms and conditions.

Howse (Synchrony): Messaging is critical for informing consumers of affordability options as early as possible in the purchase cycle. Tire dealers should emphasize and advertise convenience, flexibility, choice and accessibility in promoting financing options to consumers with phrases like ‘flexible payment plans’ and ‘affordable financing options,’ reassuring customers of choices. Synchrony’s enrolled merchant partners have access to the Synchrony Ad Wizard to take advantage of pre-designed credit messaging for their store and website, while also having the ability to customize certain messaging with their logos or business names.

Beyond messaging, it is critical that dealers spend time training their employees on effective ways to introduce and discuss credit with consumers. Credit is not only a pivotal tool in helping consumers plan for meaningful purchases, but it is also an effective tool in closing complex and expensive sales. Synchrony's Small Business Learning Center consolidates training and education for our small business partners and offers a wide array of resources on financing programs, digital tools, advertising support and more to help them to learn how to market our products to attract and retain new customers to grow their businesses.

MTD: In the tire and automotive service space, why is it important that tire dealers offer secondary financing?

Knowles (Kornerstone): We have seen the highest increase in tire prices in recent years and auto repair costs have increased even higher. With Americans driving their cars longer, these increased costs are unexpected and unmanageable for many consumers with low or no credit.

Brown (Snap Finance): It can take years to recover from late or missed payments, bankruptcy or other items on a credit report. In the meantime, people with credit issues still need tires and wheels — and are often turned down for traditional financing. Secondary or tertiary financing can be a lifeline to those with lower credit scores, especially when their safety and ability to commute to work are at risk. Our research shows that 31% of consumers with credit scores below 670 could not have paid for their tires or wheels without financing.

Howse (Synchrony): The rising age of the average car in the U.S. means consumers will continue to pursue maintenance and repair options for longer. These costs continue to climb for a number of reasons and there is no consensus on when they will stabilize. Consumers are expecting merchants to provide them with options across the entirety of the purchase cycle. Financing is at the top of that list. Offering flexible financing solutions is crucial for tire dealers to expand their customer reach to those who may need affordable payments plans or promotional financing to pay for the products and services they want and need. By making services more accessible through a variety of financing options, auto repair and tire dealers can boost sales and stand out in a competitive market. Additionally, offering financing helps foster customer loyalty by providing convenience and flexibility, which can lead to repeat business and positive word-of-mouth referrals. Synchrony believes in building long-term relationships with our cardholders, dealers and partners. We’ve demonstrated this in our over 85 years of providing consumer financing in the U.S. Ensuring dealers have access to well-understood and accessible financing and payment solutions while providing customers with the means to afford necessary automotive services is a vital piece of strengthening that relationship.

MTD: How many secondary financing customers become repeat/return customers?

Knowles (Kornerstone): Well over half of the customers who set up payment programs return to do so.

Brown (Snap Finance): Relationships matter when you’re building loyalty with customers, especially those who are often turned away because of their credit history. Our research shows that 77% of consumers with credit scores below 670 said a positive previous experience was important to them as they decide where to buy new tires or wheels. Customers remember when a business can help them get what they need.

MTD: What does the data show for average ticket price in the automotive/tire market?

Knowles (Kornerstone): For auto repairs, we see an average of $2,000 invoices with many at $4,000 or more. For tire retailers, we see an average of $1,200.

Brown (Snap Finance): We know that when financing is available, customers can upgrade their purchase or get more of what they need. Our research shows that on a recent purchase, 58% of those with credit scores below 670 spent more because financing was available.

MTD: Do consumers usually purchase four tires rather than two, or do they tack on automotive services to a tire purchase when using secondary financing?

Knowles (Kornerstone): With a reliable alternative finance option, we have observed that customers are inclined towards purchasing higher quality sets of four tires. This is especially true for all-wheel-drive vehicles, as they often necessitate the replacement of all four tires simultaneously. As a result, customers are actively seeking assistance in spreading out the costs associated with this essential purchase.

Brown (Snap Finance): With financing, more shoppers can get more of what they want or need —and retailers can increase their average order volume. Our research shows that on a recent purchase, 58% of those with credit scores below 670 spent more because financing was available. And among those who spent more, 79% increased their purchase by $100 or more.

About the Author

Joy Kopcha | Managing Editor

After more than a dozen years working as a newspaper reporter in Kansas, Indiana, and Pennsylvania, Joy Kopcha joined Modern Tire Dealer as senior editor in 2014. She has covered murder trials, a prison riot and more city council, county commission, and school board meetings than she cares to remember.