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High street banks raise tempo

The direct lenders, high street banks and former building societies are all gearing up to take a bigger slice of motor finance business this September.

The past few weeks have seen increased marketing activity in consumer motoring magazines from big direct loan players, such as Alliance & Leicester. High street names, such as NatWest and Woolwich, are featuring cars - not home improvements or holidays - on the front pages of their personal loans brochures.

The banks recognise there is pent-up demand in the market and believe September's plate change will see some of that released.

The Government has issued its pricing legislation and, perhaps just as importantly, the Bank of England has left interest rates on hold. Customers should come back into the market.

Many lenders have lowered their rates around the critical £5,000 to £7,000 loan band. NatWest has dropped 1.5% off its £5,000 rate while Alliance & Leicester is down 0.6%.

The banks are hoping to make up the lost revenue by upping rates on a typical holiday loan, around the £2,000 level. NatWest has put these up by a full 2% in the past month.

Dealers must be aware of these rates, particularly when signing off advertising in local papers and on local radio. There is always a temptation to up the rate and make more from the finance when the going gets tough.

But, a headline figure of 10.7% APR on a £5,000 car loan from the bank looks competitive against the typical 15% to 18% that many dealers have resorted to recently. Faced with those sorts of comparisons, customers will walk.

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