The Best Car Finance Blog In The World

I know I keep whinging on about the FCA and their new rules but I am genuinely worried about the affect it is having on the ability of lenders and intermediaries to do business and for genuine borrowers to be able to take out finance. As a result I’ve become pre-occupied with the subject of affordability and how lenders can analyse the application from a client to assess whether the customer should receive the finance or not.

Thinking of a change but unsure as to the best way to finance your car? Then you need a copy of my car finance book, Car Finance – A Simple Guide by Graham Hill. Click on the link below to buy the best car finance book on the market, available as a Kindle Book and Paper Back.

The problem that lenders have faced for years is – will the applicant make his repayments? The only way they have been able to assess this is by combining historical data with statistics to arrive at a pretty Heath Robinson credit score.

From the information obtained from the credit reference agencies combined with the lenders own score card requirements a further analysis takes place using statistics to arrive at an acceptance, decline or an acceptance subject to certain conditions or additional information.

For example if you are married with children in a house that you ‘own’ you are less of a risk and more likely to pay than a single person with no dependents living in rented accommodation. The fact that you own your house and have made your mortgage payments on time contributes towards your credit score but the fact that you are married with dependents is part of the lender’s score card. Now here is the confusion created by simply looking at your credit score.

Your credit reference agency score could be excellent because you have a credit card with a £2,000 limit on it that is paid on the button each month with a small balance on the card that every 3 months is fully paid off. All other payments are made on time including your mortgage which shows you own your property and you have no adverse whatsoever on the file.

But just because you have an excellent credit score doesn’t mean that you can afford to take out a finance agreement that will cost you £500 per month. You may show that historically you have met all your commitments and therefore represent a good credit risk but where is affordability in all this?

The lender’s own score card may show that having responsibilities, like a mortgage and children, living in a certain area in a certain job may statistically make you a good risk, there is nothing to prove it and I believe that it is this shortfall that has caused the Government via the FCA to force the lenders to test the ability to pay rather than the intention to pay.

But my question is this – if, through some twist of fate or luck the system worked – why try to fix it to the detriment of all concerned? We know that short term or pay day lending is a totally different type of product and given the distress that the collection and ability to rollover the debt, thereby substantially increasing the amount owed, causes consumers, it makes sense that lenders apply a more stringent set of affordability tests.

But that doesn’t apply to normal lending where the lenders have many years of experience under their belt and know who represents a good risk and who represents a bad risk. It’s a little like Ford identifying a problem with Focuses manufactured between 2010 and 2012 but recalling all Focuses ever made just to be on the safe side. It’s ridiculous.

In my simple opinion the ‘problem’ is being approached from the wrong end as I believe that generally most people have the intention to pay and have already personally checked the affordability of the finance out of their income. If someone dies in a car accident the Government doesn’t stop everyone from driving.

Lessons need to be learned, addressed and repaired to prevent it from happening again. The same applies to lending. But it already does. The lenders would soon go out of business if the number of defaults and arrears kept increasing so they are obviously refining their credit underwriting but even the lenders don’t have access to a crystal ball to see into the future.

The Government needs to spend money on helping those with debt problems, assist them in managing the debt and help them to recover with least pain to them and their family. When it takes two and a half years for the Financial Ombudsman to review a complaint it is clearly here that effort and money needs to be funnelled not into affordability checks that the lenders do quite adequately.

I ask the question again, what happens to those that wish to borrow money for a car in order to get to work or get their kids to school when the lender, after applying the new tests says no? The whole FCA concept has been ill conceived and badly thought through and for once it has nothing to do with the EU. By Graham Hill

I have issued another general warning about the lack of money available to lend and the subsequent repercussions. I have had many people writing to me explaining that they had strong credit but have been declined for loans on several occasions and are now being told that they have dropped into the sub-prime category, which means they will pay high rates of interest if they are able to secure finance at all. The reason for this is the fact that whilst there are still lenders willing to offer low rates Read more »

Statistics really get on my wick! Speaking to fleet owners and various lenders it is clear that there is less money to lend and businesses as well as consumers are finding it more difficult to finance vehicles. My own association, the NACFB has said that current lending by members is around £7 billion compared to £20 billion in the mid 2000’s. And yet banks and the lender’s association, the FLA say that they are lending more and that, according to FLA statistics their members are lending 16% more to Read more »

If you are about to finance a car in your own name as opposed to through a business, you will need to allow a little extra time between ordering, signing the finance agreement and collection/delivery of the new car. According to the new EU Consumer Credit Directive all agreements that fall within the terms of our own Consumer Credit Act must be given a 14 day cooling off period. In the past, if you signed the agreement on trade premises, for example at a dealership or the premises of a broker Read more »

On the subject of the new EU Consumer Credit Directive there is a change to the 14 day cooling off period that is given to consumers when they sign the finance agreements off trade premises. Currently you can cancel an agreement if it is regulated under the Consumer Credit Act and signed away from the premises of the funder, the broker or the dealer. However, if you sign on trade premises you don’t have the 14 day Read more »

Warnings have been issued to employees that are considering a cash for car option. The warning from the boss of Pendragon Contracts, Neal Francis was making the point that lenders are more likely to consider a company application for finance either for company vehicles or as part of their salary sacrifice scheme. He pointed out that the market had changed significantly and individual applications are not as Read more »

The test of a finance arrangement isn’t so much the cost or the APR but in the current climate, what happens when things go wrong. Most of my readers know my views on the heavy promotion of personal loans rather than dealer HP but another issue was mentioned to me this week that again shows why HP is far more beneficial than a personal loan. When you take out dealer HP it is what is known as a Read more »

Three times this week I have had discussions about APR for absolutely no reason. The bottom line question to be asked about any finance arrangement is how much will it cost and can I afford it? I am completing a book listing over 40 ways to fund a car and I point out at the very beginning that APR is not important in many cases. I have compared an HP agreement with a PCP the latter of which has a higher APR but Read more »

Underwriting is becoming a bit of a nightmare with lenders seemingly running out of money. It’s all very frustrating as I have loads of enquiries and proposals but far too many are being declined for credit, a situation that will only get worse. Applicants need to take more care over their credit and avoid any adverse or suffer the very severe consequences. Also consider the amount you are prepared to pay up front Read more »

Fuel is coming down, the sun is shining and the banks are lending again. Well 2 out of three can’t be bad! I think the email from the Government to the banks must have got lost in cyberspace somewhere or maybe they sent it in the post without a large letter stamp attached. Either way I am still waiting, as are most in the finance industry, for the glimmer of light that suggests that Chancellor Brown oops I mean Darling did the right thing for us common people or whether things will continue to deteriorate. The annoying thing is Read more »