Startups that provide financing support to Nigerians planning to own a vehicle are readjusting their strategies to keep demand stable as inflation continues to rise, pushing vehicle prices higher.

Auto finance companies enable consumers to buy cars from dealers and be able to pay over a period of time. 

However, experts say shifts in vehicle pricing due to the FX crisis and market dynamics have significant implications for vehicle financing. 

Three companies that TechCabal spoke to said they are prioritising financing vehicles in areas of preference. This means measuring the demand for a particular vehicle, deciding whether the vehicle serves a commercial purpose, and assessing how affordable it is for consumers. 

“Ultimately, these changes reflect a dynamic adaptation within the vehicle financing sector to accommodate shifting market conditions and consumer preferences,” said Ojurongbe Damilola, head of technical services, Cars45.  

Max Drive, for example, which historically financed motorcycles, bicycles, three-wheelers, and mini-buses (four-wheelers), said it has recently done more three-wheelers and motorcycles in the 11 Nigerian states where it operates. It has financed 33 vehicles so far. Max Drive plans to finance 70 vehicles in 2024. 

For Carima, a B2B marketplace that allows dealers to make requests from other dealers for cars they don’t have in their lots, financing dealers is the better route to profitability. The company said it has financed dealers’ requests worth N400 million since January this year and has received back 100% of the loans. The platform has 3,000 registered dealers and overall access to 30,000 dealers. 

“We are financing dealers because they see cars as an asset while the normal individual sees cars as a liability. The dealer is buying a car because he wants to resell and make a profit,” Adebayo Tomiwa, CEO of Carima, told TechCabal. With 100% repayment done so far, Carima is now looking to expand the service. 

While prices of cars are on the rise, experts say the factors driving consumers towards vehicle financing include the ability to access a wide range of vehicles that financiers can now provide. Ojurongbe Damilola of Cars45, told TechCabal that this variety now allows individuals to select vehicles that meet both their preferences and financial realities. 

Another factor attracting consumers is expanded financing options due to more financing companies entering the market. This means that customers can now make their choices from a broader range of car loan providers. This also has led to more people embracing the concept of financing vehicles as they are more willing to consider vehicle loans as a viable option for buying cars due to the financial burden it takes off them. 

“This increased competition among financiers has made financing more accessible to a larger segment of the population,” Damilola said. 

However, there are concerns as to how the Central Bank of Nigeria’s Monetary Policy Committee (MPC) will affect loan interest rates, including car loans, if they continue to increase the benchmark interest rate. On March 26, 2024, the MPC hiked the benchmark interest rate by 200 basis points to 24.75%, from 22.75% recorded a month ago. Most of the financing companies often collaborate with financial institutions to access the funds they disburse as loans; an increase in base interest rate can also necessitate an adjustment in the rates offered by these companies.