By Shaun Armstrong – Managing Director of Creditplus.co.uk
A combination of consumer confidence and more liquidity from key car finance companies has seen Creditplus.co.uk show a 19% increase in finance deals written in the first half of this year.
The majority of the up turn is due to the willingness of key lenders such as Barclays Partner Finance and non prime providers such as Moneyway all reviewing and reducing their credit profile scoring. We have seen an increase of applications accepted by lenders increase by over 24% this year so far, clearly a sign that the loan books are performing better with less delinquency and bad debt.
Consumers are taking a more pragmatic view when organising car loan deals, they are staying in the agreement longer and only committing to a lending programme they can afford. Job security rather than monthly cost or interest rates remain the key reason not to take out a car loan.
Debt statics show that the average cost of running a car today is just under £17 per day for an average vehicle owner travelling 10,000 miles per year. Consumers are also more likely to take on debt as a means to fund their lifestyle with personal lending (including car finance) up from an average of £3,207 per person to £3,211.
The improvements in the industry are confirmed by the fact that certain lenders are clearly back trying to gain a larger market share and as such have shown clear changes to the risk polices and the profiles of consumers being accepted by the prime lenders in the UK.
While hire purchase agreements continue to improve it is actually Personal Contract Purchase (PCP) agreements that are the fastest growing funding method for car purchase. Consumers are taking advantage of lower monthly costs during the term of the agreement with the option of either purchasing the car outright or return the vehicle back to the lessor at the end of the agreement.
PCP plans have become a very cost effective way of purchasing nearly new or used vehicles up to 3 or 4 years old. On average 55% of the monthly cost is to cover depreciation and therefore these vehicles score well on low monthly cost as they have already seen the high depreciation levels in the first 18 months taken out. Many consumers still do not realise that they can lease used vehicle at incredibly attractive monthly rates.
The second half of 2013 is set to continue in the same vein, with Barclays, Black Horse and certain non prime lenders pushing for a combination of sensible risk lending and increased market share, all of this will be aided by the fact interest rates will not move this year.
Lenders currently feel comfortable with the market situation as they are seeing better repayment levels and a reduction in bad debt. Creditplus.co.uk has seen a 7% improvement in customers paying on time and a 2.5% reduction in those car loans going into bad debt or write off status.
About the Author: Shaun Armstrong is the Managing Director of Creditplus.co.uk. He founded the business in 2004 and has guided the company to become one of the largest online car finance providers. Shaun was recently featured in the top 50 Most Powerful People in UK Car Finance by the Motor Finance magazine.