Prime and subprime car finance provider Moneyway is currently piloting its settlement short fall loan scheme with dealerships, providing a loan to cover the negative equity in a car finance deal.
David Nield, director of lending at Moneyway parent Secure Trust Bank said the scheme would come in to play when finance companies could not offer a customer the full amount required because of loan-to-value restrictions.
Nield said that dealers were often frustrated by declines on finance proposals forfeiting sales, particularly when “terms on acceptance don’t allow them to do the deal on the customer.
“That’s most common on loan-to-value and is quite often from the previous finance deal the customer was in, so they’ve got negative equity.”
Do your deal
Nield explained that many ideal agreements were being lost in dealerships owing to loan-to-value terms on prime agreements, and said that the scheme would be able to step in to make another deal possible as a best alternative.
“What we’re saying is: ‘Do your deal with your prime finance provider,’ so that’s a smaller balance and payment.
“Then take a settlement short fall loan to cover the negative equity.”
The loan is designed for true prime customers facing negative equity on a part-exchange deal, available over 12, 18, 24 or 30 months on sums between £500 and £4,000.
The scheme operates with zero deposit and zero interest rate, with the subsidy deducted from dealer settlements.
Half the time
With car financers and dealers obligated by Treating Customers Fairly regulation, Nield also emphasised the ability of the loan to aid consumers.
“What we don’t want to do is burden the customer with long-term debt. We’d like to help the customer get out of the situation when they change the car.”
Andy McMorine, head of lending development at Moneyway, said a large part of this was down to the relative short lengths offered by the pilot scheme.
“We’ve termed our proposition at half of the period of the prime loan.
“On a 60-month deal – which most of these deals will be – we’ll lend the interest-free element to top up over 30 months because we know some of our competition out there will offer top-up loans at 48-month terms, which doesn’t really put the customer in a better position.
“The shorter you can put that cycle in on the top-up loan, the more beneficial for the customer and also, more importantly, the less total interest the customer will pay across both agreements.”