The purchase of a new car – whether brand new or second-hand – is likely to be the second-largest purchase a consumer makes. As such, the regulator has been focusing on ensuring that appropriate checks are being made to safeguard against an individual becoming over-indebted if they take out a loan to make the purchase. This might include, for example, being able to provide evidence that the proper checks have been completed and practices adhered to prior to agreeing to the loan.
While keen to be doing the right thing and to keep the customer at the heart of their lending decisions, the automotive industry still has some concerns over implementing any changes required. For example, many in dealerships feel uncomfortable asking about a customer’s income, one of the main ways to check affordability.
Go deeper with GlobalData
Access deeper industry intelligence
Experience unmatched clarity with a single platform that combines unique data, AI, and human expertise.
There’s also a desire for lenders to ensure that any processes they adopt retain operational efficiency and do not negatively impact the sales cycle by decreasing automation. It’s of paramount importance for lenders in the sector to reach the right balance between providing speed of service to the dealers and meeting regulatory compliance requirements.
Holistic view
While some lenders will scrutinise an application and undertake a variety of checks before confirming a loan, others will collect income details but won’t verify it. Guidance is therefore needed to help lenders get a holistic view of their customer.
There are some key checks that lenders should perform to achieve a clear picture of a customer’s incomings and outgoings, and therefore expenditure and disposable income, before granting a loan. These include verifying their income and their indebtedness scores or, in order words, how likely they are to be able to repay their debts, and their credit capacity – or the amount
of money that they can borrow and are expected to repay – as well as additional checks on assets that they own, such as property.
There’s a fine balance between undertaking the appropriate checks while maintaining high service levels. There’s a perception that detailed income checks will result in an increase in manual intervention which many lenders want to avoid. However, this need not be the case.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataBeing able to make good decisions, and quickly, remains vital for the sector. Meeting the needs of the dealer, the consumer and the regulator requires ongoing debate and collaborative working. We are definitely heading in the right direction. While increased regulation and scrutiny of affordability within the automotive sector is inevitable, there is general optimism about this as a positive contribution to improving the brand of the sector.
Gary Brown is head of automotive at Equifax
