It is interesting to note that cars being bought on finance have seen year on year rises in January of 6% on new cars and 20% on used. On the face of it this statistic looks encouraging, and in many ways it is, but many dealers will be scratching their heads on discovering these stats because many are having increasing numbers of customers being declined.
In the car trade experienced sales people can generally very quickly qualify whether a potential buyer is finance worthy and this can help avoid disappointment later for both car buyer and salesperson alike. Recently however declines for finance, according to our sources, are affecting customers who in “normal” times would have no trouble obtaining finance for a car purchase.
On the other side of the coin high street lenders have very few products which can challenge the asset backed finance deals offered by franchised and independent dealers such as PCP’s which are growing ever more popular with buyers looking to protect them from the negative equity trap. This type of finance, lest we forget, is also profitable for the dealer.
We head of an example recently where a woman, who was going through messy divorce, was waiting for some funds to hit her bank account and went into an unauthorised overdraft situation. This apparently was enough to have her declined when she could easily afford the repayments.
If buyers are going into car showrooms to obtain finance and have no reason to suspect they have a downgraded credit rating there could be more embarrassment to come. Not only that, finance companies maybe turning away good customers by being far too inflexible with who they lend to.
Someone who may struggle to get finance in a car dealership is often referred to as a ‘get me done’ which means they want a car under virtually any terms and are prepared to suffer much higher rates of interest and tougher terms so that they can have a new car. However, unless the credit companies are careful they may be a whole new class of “get me done’s” who actually end up not wanting a deal at any price and just keep the car they are in.
Although, on the face of it, finance penetration may have grown it is more likely that the demographic of customer interested in dealer finance has changed.
Let’s face it, if they cannot find ways of earning interest on their savings many people will opt to fund a car at a competitive rate so that they can at least enjoy a new model and use their money for something cost effective at the same time.