Still Difficult Times Ahead For Car Finance Applicants
Monday, 13. September 2010
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On the 14th September I attended a meeting of the good and great in the vehicle finance industry at the London offices of Grant Thornton. The purpose was to debate the challenges of the industry which would be reported in the journal of the industry, Motor Finance. There were many conflicting views but the bottom line is that we are still in for a tough time. Clearly there is a lack of liquidity in the vehicle finance sector which means that fewer finance applications are going to be approved. So to reiterate something I said some time ago it is important that you properly prepare for finance. Areas such as late payment of credit cards are now being taken into account for the first time and there is a marked difference in the way that different funders consider applications for finance. In the UK you cannot be told why your application has been declined compared to the US where you are told exactly why your application has failed. They also tend to make risk based decisions, something I’d personally like to see introduced in the UK. Let’s say you apply to your bank for a loan. Even though they have advertised a rate of 7.9% APR they offer you the loan at a rate that reflects their risk based on your credit score, say 10.9% APR. The same could be done with car leasing. In the past, when I started as a broker, we would have many systems from a variety of lenders and based on the strength of your application I would select which funder was most likely to approve the deal. We would try to ensure that we got you the best rate considering the strength of your credit. But with the Internet fewer brokers can do this, they simply propose you to the cheapest lender knowing full well that the cheapest means least risk so unless you are 100% squeaky clean you will fail. This isn’t good news because to apply to another lender, offering higher rates, means another search on your credit file which doesn’t look good. With still a lot of pain to endure the most important point I can make following the meeting is to apply for finance early because if you fail you may have to extend your current contract by 6 or 12 months simply to keep mobile and repair your damaged credit. With few sub prime lenders in the market the last thing you want is to have to take finance calculated at an APR of around 45% in order to keep yourself mobile. By Graham Hill
