If you are a motor dealer, what significance do you see in the acquisition of Moneybarn by Provident Financial? If I were in your shoes I would see it as a massive vote of confidence in the future of the used car finance market, particularly the subprime or non-conforming sector. Provident has made it clear it believes the non-standard car finance market has significant growth potential and it considers there to be considerable demand which has yet to be met. I’ve had the pleasure of meeting the company’s chief executive, Peter Crook, on more than one occasion and have no doubt that Provident wouldn’t have made such a significant investment unless it was absolutely convinced of the size of the opportunity.
I think what this signals to motor dealers is that, in order to maximise their chances of sharing in the benefits of a growing market, they need to ensure that the list of lenders with whom they work includes at least one who is prepared to accept applications from non-standard customers. I say ‘non-standard’ because not all customers who fit that category may necessarily have a poor credit history. This group of customers can be quite diverse in terms of their needs for a lender such as ours, Credit4Cars, including the recently self-employed.
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Of course I realise that the ‘hassle’ factor may deter some dealers from wanting to serve this customer base. All finance companies are under a duty to lend responsibly and unfortunately what the customer says at the application stage cannot always be accepted at face value. We have taken seriously our responsibilities to carry out proper lending diligence right from inception of the business and before commencement of the FCA regime. This means we insist on seeing bank statements and other proofs of income to assess affordability and do not rely on credit scoring. Nor do we always accept what the customer tells us about their outgoings and will gross up spending if we believe this has been understated according to our experience of similar family groups.
We base our lending decisions on the surplus available to the customer after taking income and expenditure into account. On many occasions we see that the surplus based on the information provided by the customer is considerably higher than the surplus once the case has been assessed by one of our underwriters. Nevertheless our promise to our dealers is that, if the customer can afford the repayments, then we will complete the transaction. This may have involved spending a bit more time on the part of the dealer than would have been involved on a standard finance application, but the end-result is that the dealer is able to sell a car which would otherwise have remained on the forecourt.
There may be some dealers who are thinking of exiting the finance market rather than go through full FCA authorisation. This would be a shame as, although the application may look a daunting process, much of it is based on common sense and good practices which already exist in the market. It’s largely a matter of businesses getting down on paper what they do already and taking on board any additional requirements such as the accurate recording of complaints handling.
Also take into account that the size of the non-conforming market is about to grow. I say that because it’s widely accepted that the next move in interest rates will be an increase, although nobody seems to be able to agree when it’s likely to happen. Consumers have taken advantage of the low interest rate regime, perhaps too eagerly in some cases. I read the other day that a large number of homeowners have said that even an increase of just 1% on their mortgage would mean that they would struggle to afford the increased payments. I imagine there are a lot of people with unsecured debt based on a variable interest rate that may also get into difficulty when rates rise. This means there’s going to be an increasing number of customers who need a lender which serves the non-standard market and that those motor dealers who work with lenders such as ourselves will be the ones who will be seen to have taken full advantage of the opportunity.
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By GlobalDataProvident haven’t spent all that money for nothing.
John Webster is group managing director at Credit4Cars
