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In Focus Risk
Dealer’s choice
As interest rates and the forecast of defaults rise, dealer fi nance remains accessible and competitive
Karl Werner Managing director, MotoNovo Finance
After many years of a low-interest, low infl ation economy, which will be new for many consumer and dealer personnel, we must be keen to reassure dealers that dealer fi nance remains competitive in pricing and acceptance levels for many customers, as he notes.
Rate rise Recent interest rate rises, designed to address infl ation, impact all lending. According to recent Bank of England data, personal loan rates rose 60 basis points in April alone, ahead of the latest base rate increase.
The Bank has also reported that defaults on
Recent interest rate rises, designed to address infl ation, impact all lending. According to re- cent Bank of England data, personal loan rates rose 60 basis points in April alone, ahead of the latest base rate increase
unsecured lending are expected to increase in Q2. Such an outcome is likely to see a more prudent approach to unsecured lending. The increase to a 1% Base Rate by the Bank of England in early May, the highest level for thirteen years, is a trend that may continue. The Bank of England’s chief economist warned that more interest rate rises may yet be needed to curb infl ation1.
Not immune While not immune from the economic backdrop, at times of fi nancial turmoil, as seen during the initial stages of the pandemic, the ‘secured’ nature of dealer fi nance can make such fi nance accessible to many people. Going the extra step – risk-based pricing –
such as that available through our MotoRate model, delivers an option that, because an approval APR is tailored to each borrower’s credit circumstances, provides accessibility and fairness, which is ideal in light of the prevailing economic challenges.
Appropriate PCP and HP fi nance are highly appropriate vehicle fi nancing options. The inherent secure nature of the products delivers high acceptance levels and competitive interest rates. Low unsecured personal loan representative APRs are an option for consumers. However, lenders need only off er such rates to a minimum of 51% of successful loan applicants to comply with regulation; the rates are not universal. It is also a choice that does not share the
unique consumer protection of HP and PCP fi nance and may not off er the high loan values often associated with a car purchase. Dealer provides a compelling choice for many would-be car buyers. CCR
40
www.CCRMagazine.com June 2022
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