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Breathing space for lenders

A period of relative stability in bank base rates has allowed the high street and direct lenders a short breathing space in the fight for market share. As a result, loan rates have remained unchanged over the past month.

In autumn, attention turns to other family expenditure such as Christmas presents and next year's summer holidays. Banks and building societies are likely to switch their marketing spend away from motor retailing which should mean competitive pressure will ease a little and there may be some flexibility on rate.

September was slow on both new and used cars but many dealers were able to use strong finance messages in their local advertising. That will draw some customers back into the showroom.

But it would be wrong to become complacent and allow rates to drift too high. The latest Mintel research indicates 10% of car buyers are using loans arranged in the high street or direct with a lender. The proportion of finance arranged with a dealer has fallen to 14% of the market.

Come the spring the battle is likely to hot up again. Two new entrants into the personal loans market, RBS Advanta and American Express, are determined to move heavily into cars. RBS Advanta claims it will “conquer” the loan market with its headline rate of 8.9% APR.

But, as always, the headline rate does not reflect the true picture. It is only available on loans over £20,000. More typical car loans of £3,000 to £5,000 attract 13.5% – good but beatable in most dealerships.

{*FA October 2000(2)*}

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