It will be increasingly difficult for motor finance companies to operate with a fixed rate finance ‘one size fits all’ offering, says MotoNovo Finance.

Jon Slater, MotoNovo’s chief strategy and marketing officer, believes that Covid has changed the consumer credit dynamic. “While some people have been able to save money, sadly, many others have encountered financial challenges. Alongside this have been improvements in financial literacy gained during lockdown, notably amongst the vital millennial sector.

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“Today, we must better meet the needs of increasingly well-informed customers across the credit curve. In car finance, one size will not fit all.”

Slater said the challenges facing dealer finance in meeting customer needs are being complicated by the returning lending appetite of personal loan providers. The pandemic saw many providers restrict their lending to protect themselves from an economic downturn, however confidence now seems to be growing.

Personal loan rates have dropped in some tiers and lenders are more active, MotoNovo has observed. A consistent theme is the promotion of competitive APRs linked to risk-based pricing, targeting the most creditworthy, but capable of rate adjustment to many other applicants. For dealers with a fixed rate proposition, the inevitable lack of a compelling headline APR is a challenge, as is the absence of rate flexibility.

MotoNovo has been able to benchmark the more traditional fixed-rate finance pricing model versus the firm’s MotoRate risk-based pricing model:

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  • 59% acceptance rates for MotoRate, compared to 51% for fixed-rate dealer proposals
  • 16% higher acceptance levels for MotoRate proposals, compared to a traditional pricing model
  • 55% growth in payouts for ‘A1’ high-quality applicants, versus a decline of 2% for dealers adopting a traditional pricing model
  • 24% year to date, increase in A1 high-quality proposals

As Slater concludes, an inability to tailor finance to the customer’s circumstances is limiting.

“The needs and profile of potential car buyers has changed, as has their financial awareness. Dealers can tailor a car to suit each buyer and given its linked nature; it is becoming clear that this same level of customisation should apply to finance. It is something that would also enable dealers to use competitive APRs in their promotional activity; this is the new normal for consumer credit.”