CHANGING appetites towards risk in unsecured lending look set to continue, opening up opportunities for used car dealers to tap into a £58bn market opportunity, driving sales and increasing the value of used car finance.
That’s according to financial services business MotoNovo Finance, which said recent evidence from the Bank of England showed that unsecured personal loans providers had significantly tightened their underwriting and MotoNovo was leading a drive to help dealers maximise the opportunity this presented.
The bank said earlier this year that the availability of unsecured credit had decreased significantly, with lenders reporting that ‘credit-scoring criteria for granting both credit card and other unsecured loan applications [had] tightened significantly’.
According to the Finance and Leasing Authority, secured finance to acquire vehicles totalled £44bn in the UK last year, while unsecured lending reached £300bn, of which auto finance accounted for £58bn, reported PricewaterhouseCoopers – one of the ‘Big Four’ auditors.
MotoNovo – which was named top finance provider for the prime market at this year’s Car Dealer Power and backs findandfundmycar.com, which was awarded the title of best product innovation at the same awards – added that the Bank of England’s recently published Credit Conditions Survey for the second quarter suggested that this trend showed no signs of slowing.
The availability of unsecured credit to households was reported to have been unchanged in the second quarter and was expected to decrease slightly in the months to follow. Credit-scoring criteria for the granting of unsecured loans were reported to have become significantly harder in the second quarter and, notably, the proportion of applications had increased significantly.
Mark Standish, pictured, chief executive of MotoNovo Finance, said: ‘There is a clear opportunity for dealers to gain a greater share of the used car finance market where unsecured loans have historically led the way, and we are on a mission to help more dealers to bridge that gap.
‘While dealer finance is not immune from tightening credit conditions, the reduced credit risk associated with secured dealer finance could make credit proposals more likely to be accepted when compared to a comparable personal loan.
‘Around 90 per cent of private new car buyers choose dealer finance. That fact alone goes to show the potential opportunity awaiting used car dealers. It’s now about winning the hearts and minds of used car buyers. The availability, convenience, and competitive nature of dealer finance need to be made clear to them.’
Standish added he believed that technology was the answer to bridging the gap and educating consumers on their used car finance options.
‘Consumers still rely on traditional forms of lending, like personal loans, because the process is familiar and accessible. People are used to dealing with their finances through their bank. But buyers are increasingly turning to online options that make their lives easier, and capturing used car buyers digitally could really disrupt the market.
‘Our vision for findandfundmycar.com puts the consumer in control and enables a simple online journey that incorporates creating their own finance deal. The win for the dealer is in the chance to secure a car sale and a finance sale.’