Guarantor lender TFS has begun targeting customers wishing to borrow money for a car, but with credit ratings too poor for traditional motor finance companies.
The funder has been lending for approximately seven years, and mostly operates through intermediaries, such as brokers and affiliates.
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Ray Bohringer, head of sales at TFS, told Motor Finance the lender was already seeing a number of requests for car finance before it moved into the sector.
He said: "If I’m honest we don’t know if that is the case every time, or if it just makes a good story. We will lend for most legal purposes, providing the applicant is ok in regards to affordability and the guarantor meets our requirements. It’s not really an issue, and we don’t make any point about what we will and won’t lend for. All applicants and guarantors must meet FCA guidelines on affordability etc"
In order to move into motor finance, TFS researched the market and found that its loan sizes were too low. Bohringer said: "We pushed our maximum loan size to £12k because we think the sweet spot in this market is probably £7-7.5k. We want to make sure that we can accommodate larger loans. To be honest we like the larger loans, that said we will lend as low as £1,000"
TFS will be targeting customers who have been turned down by other lenders due to a poor credit rating, as the guarantor method allows the lender to concentrate on affordability and care less about the customer’s credit history due to the guarantor.
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By GlobalDataIncreasing guarantor presence
TFS is the second guarantor lender to move into the motor finance area in recent months, after year old guarantor lender George Banco made a similar announcement in December 2014.
Bohringer told Motor Finance a part of the reason for these moves was the quantity of guarantor lenders out there. He said: "There are a lot of new lenders cropping up at the moment and as a result prices are being pushed down, which is a good thing for the consumer.
"It’s also pushing the boundaries of the product. I don’t know how far that will go, purely and simply because until you’ve got a seasoned book, you can’t really judge the quality."
According to Bohringer, a lot of these lenders are fairly small in size, with maximum monthly lends of under £100,000, however some are larger in size. He said: "there are other lenders in the industry that I can think of that will have the financial backing, and I’m sure it’s a market they will look to explore."
While an increasingly competitive guarantor market has driven down rates in the sector, Bohringer said he doesn’t feel an increased motor presence will threaten the traditional subprime finance players, such as Billing or MoneyBarn, for the simple fact that most applicants would prefer to deal in their own name against a car, rather than seek out a guarantor.
