11:53 am, April 7, 2020
The motor finance sector could look massively different after the coronavirus crisis, according to Startline Motor Finance.
The near-prime specialist predicted that unemployment would see a ‘significant jump’, and with millions also needing government help with their personal finances, the methods currently used to credit-score applicants may end up being much less relevant.
Chief executive Paul Burgess said: ‘Whenever things return to relative normality, we’ll be looking at a UK working population, both employed and self-employed, whose personal financial situation will not be as simple to read as previously.
‘Motor finance companies will very likely have to think again about how they assess individual creditworthiness, and we may well find that the market segmentations that we use now such as prime, near-prime and sub-prime have shifted.’
And he said that despite the unprecedented financial intervention by the government, there would probably be a fairly major rise in unemployment.
‘We’re seeing predictions of the unemployment rate doubling from its pre-crisis rate to about seven per cent, which is clearly a significant jump. The perception that employment has become more precarious will also create difficulties.’
Burgess added that an increasing number of motor finance companies might find themselves having to adopt a business model that resembled more closely Startline’s approach, talking more to individuals about their finances rather than simply using a ‘one-size-fits-all scorecard approach’.
He said: ‘Our whole near-prime business model is based on being able to use a combination of technology and people skills to recognise applicants who remain good credit risks despite some points in their finances that don’t match a traditional prime lender template.
‘We believe that this is going to be an extremely useful skillset for us in the post-crisis world. While it is difficult to predict how the used car market will bounce back, there will undoubtedly be a degree of pent-up demand released, so the motor finance situation is something that may need to be resolved quite quickly and at short notice.’
ADVICE: Can I cancel my car finance or insurance during coronavirus crisis?
