CHANGING attitutes towards unsecured lending could open up opportunities for used car dealers to tap into a £58bn market.
Recent evidence from the Bank of England shows that unsecured personal loans providers have significantly tightened their underwriting. This is opening the door for dealer finance.
The Bank reported earlier this year that the availability of unsecured credit had decreased significantly, with lenders reporting credit scoring criteria for granting both credit card and other unsecured loan applications had tightened significantly.’
However, its recently published Q2 report suggests that this trend shows no signs of slowing down. The availability of unsecured credit to households is reported to have been unchanged in the second quarter of the year and is expected to decrease slightly in the months to follow.
Credit scoring criteria for the granting of unsecured loans are reported to have become significantly harder in Q2 and notably, the proportion of applications has increased significantly.
Mark Standish, CEO of MotoNovo Finance, said: “There is a clear opportunity for dealers to gain a greater share of the used car finance market where unsecured loans have historically led the way.
“While dealer finance is not immune from tightening credit conditions, the reduced credit risk associated with secured dealer finance could make credit proposals more likely to be accepted when compared to a comparable personal loan.”
Standish said that around 90% of private new car buyers choose dealer finance, highlighting the potential opportunity for used car dealers. “It’s now about winning the hearts and minds of used car buyers; the availability, convenience, and competitive nature of dealer finance need to be made clear to them.”
Technology is the answer to bridging the gap and educating consumers on their used car finance options.
Standish added: “Consumers still rely on traditional forms of lending, like personal loans, because the process is familiar and accessible; people are used to dealing with their finances through their bank. But buyers are increasingly turning to online options that make their lives easier, and capturing used car buyers digitally could really disrupt the market.”