How to Set Up Customer Finance in a Used Car Dealership

Why This Guide Matters

Customer finance has become a cornerstone of the UK used car market. For dealerships, offering finance isn’t just an added service—it can make the difference between a lost sale and a lifelong customer. With over 80% of car buyers considering finance options, understanding how to set up and manage these arrangements is essential. Yet, the process is complex, involving regulation, risk assessment, and a thorough understanding of consumer needs. This guide demystifies the process, ensuring dealerships and customers alike can approach motor finance with clarity and confidence.

The Basics Explained

At its core, customer finance in a used car dealership refers to offering buyers various ways to spread the cost of their purchase. The most common products include:

• Hire Purchase (HP): Spread payments over a fixed term; the car becomes yours after the final payment.

• Personal Contract Purchase (PCP): Lower monthly payments with a larger optional final payment (the “balloon payment”) if you want to keep the car.

• Personal Loans: Borrowing from a bank or finance provider, then paying the dealer in full.

Dealerships can either become directly authorised by the Financial Conduct Authority (FCA) or act as an appointed representative of a broker. Each route has implications for responsibility, compliance, and customer experience. Finance agreements are regulated, so transparency about terms, interest rates, and total payable amounts is mandatory. The right set-up helps customers understand what they’re signing up for—and builds trust in your dealership.

How It Affects You

For dealers, providing finance options can substantially increase your potential customer base. Many buyers are unable or unwilling to pay upfront for a used car, especially as average car values rise. By setting up finance, you can:

• Convert more leads to sales

• Potentially increase the average transaction value

• Build stronger customer loyalty

But there are responsibilities. You must:

• Ensure all staff involved are properly trained

• Stay on top of FCA regulations

• Be transparent in presenting finance offers

For consumers, well-structured finance offers can mean access to newer, better vehicles with manageable monthly outlays. However, there is a tradeoff—the total amount paid can be higher once interest is factored in. Understanding how monthly payments, interest rates, and contract length interact is vital for good decision-making.

“Offering finance is no longer optional for most dealers—it’s a core part of the customer journey.”

Our Approach

At Kandoo, we believe that effective customer finance is more than just a numbers game. It’s about building long-term relationships founded on trust, clarity, and best practices. Here’s how we support used car dealerships:

1. Compliance and Training

We ensure all partner dealerships are up to date with FCA regulations. This includes:

• Regular compliance workshops

• Template documents for customer disclosures

• Ongoing support for regulatory changes

2. Technology Integration

Our digital platform makes it simple to:

• Offer instant finance quotes

• Submit applications with minimal paperwork

• Track deals from application to completion

3. Product Range

We work with a panel of reputable lenders, ensuring customers see:

• Competitive rates

• Flexible terms (12–60 months)

• A choice of HP, PCP, and personal loan products

4. Customer-Centric Service

Our team is on hand to help both dealers and buyers navigate tricky scenarios, such as negative equity, part-exchange, and credit issues. We believe in clear communication at every step.

5. Data Security

Customer data is handled with utmost care, fully aligned with UK GDPR requirements. Our systems are secure, and we’re transparent about how data is used and stored.

Partnering with a broker like Kandoo means you gain not just access to finance products, but also the expertise and support needed to deliver a seamless, compliant finance experience.

Before You Decide

Before setting up customer finance, it’s crucial to consider the following:

• FCA Authorisation: Will you become directly authorised, or partner with a broker?

• Staff Training: Are staff equipped to explain finance options clearly and compliantly?

• Customer Journey: Is the process of applying for finance smooth and user-friendly?

• Documentation: Are your terms, privacy policies, and disclosures up to date?

• Ongoing Support: Who will handle customer queries or complaints about finance?

It’s worth mapping the entire finance journey—from initial enquiry to final payment—so you can spot any potential bottlenecks or compliance risks. Remember, a single complaint can have major regulatory repercussions, so getting this right from the start is essential.

What’s Real, What’s Hype

There’s no shortage of hype around motor finance. Some claim it’s a profit centre with little risk; others warn of regulatory minefields. The truth, as ever, lies in between.

• Real: Offering finance can boost sales and customer satisfaction, provided it’s done compliantly.

• Hype: It’s not a shortcut to easy profits. Compliance, transparency, and customer care are non-negotiable.

• Real: Technology can streamline processes, but human expertise remains vital for judgement calls and customer support.

Dealerships should be wary of providers promising instant, risk-free solutions. Sustainable success comes from careful planning and ongoing diligence.

Pros & Cons

While the benefits are significant, the risks and responsibilities should not be underestimated. Regular reviews and updates are essential.

Other Options to Consider

If full in-house finance isn’t right for you, consider these alternatives:

• Broker Partnership: Work with a broker (like Kandoo) as an appointed representative. This reduces your compliance burden but may limit product range.

• Referral Model: Simply refer customers to a finance provider and receive a referral fee. Less revenue, but also less risk.

• Third-Party Finance Portals: Integrate online finance comparison tools into your website, offering customers flexibility while you focus on sales.

• Manufacturer Finance: If you’re an approved franchisee, you may be able to use branded finance products.

Each option has its own risk-reward profile, so weigh up the costs, complexity, and customer impact before making a decision.

FAQs

Do I need FCA authorisation to offer finance? Yes, either as a directly authorised firm or as an appointed representative of a broker. Operating without authorisation is a serious offence.

How long does it take to set up finance in my dealership? It can take a few weeks to several months, depending on your chosen model and the speed of FCA approval.

What documents do I need to provide customers? Key documents include pre-contract credit information, SECCI (Standard European Consumer Credit Information), and full terms and conditions. Transparency is required by law.

Can I offer finance to customers with poor credit? Yes, but be clear about higher interest rates and responsible lending practices. Partnering with a broker with a broad lender panel helps.

How do I ensure compliance? Regular staff training, clear documentation, and periodic reviews are essential. Working with a reputable finance broker can streamline compliance.

What happens if a customer defaults? The lender, not the dealership, typically assumes the risk. However, you must ensure customers can afford repayments when arranging the deal.

Can I earn commission from finance deals? Yes, but this must be disclosed to the customer. FCA rules require transparency around commissions.

Is offering finance worth the effort? For most dealerships, yes—provided you approach it with care, diligence, and a focus on customer outcomes.

Next Steps

If you’re considering setting up customer finance in your used car dealership, begin with a thorough review of your options and obligations. Speak to a specialist broker, assess your internal capabilities, and map out the customer journey. By prioritising compliance and customer care, you can unlock the full value of motor finance—driving sales, satisfaction, and sustainable growth.