Car buyers in the UK are more careful on meeting their borrowing capacity, increasingly choosing vehicles priced below their maximum loan amount.
This is according to Specialist Motor Finance (SMF), which will be reducing the minimum available loan for advanced car purchases by 25% as a result of the findings. Vehicles costing £3,000 will now be funded, offering customers the chance to build in an extra safety margin to their repayments.
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“I think we are witnessing a reluctance among some customers not to take their borrowing to the limit, even when this has already been set at a realistic level,” said David Challinor, managing director of SMF.
“They would rather sacrifice the size of the car they buy, or drop down a level of refinement, in order to create a bigger buffer between their income and outgoings. We feel than an entirely appropriate response is to provide leeway so that, for example, someone approved for a £4,000 loan does not have to commit to a car of that price.”
SMF said it noticed the trend following an analysis of HP advances the company had made through finance brokers and dealers. In-house credit scoring systems revealed comfortable earnings among customers in secure employment, with only average levels of existing financial commitment.
Challinor attributes the findings to a rise in the number of financially inclusive buyers who are being shunned by some traditional lenders because of historic or minor credit glitches.
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By GlobalData“If customers feel more comfortable with a smaller repayment plan, this should be an option – but the trend for under-borrowing isn’t evident just among budget buyers,” Challinor continued. “Even five-figure amounts we approve after demonstrating affordability are often drawn down as a lesser sum after the buyer imposes their own traffic light system for the loan.”
Earlier this year, SMF announced plans for accelerated growth following a funding injection of £110m via its network of finance brokers and dealers. The company stated that its focus will remain on an expanding sector of car buyers who are being isolated from mainstream borrowing, despite showing evidence of affordability.
