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Lenders faced by difficult summertime decisions

Strong new car sales, particularly to retail customers, have convinced carmakers to leave their existing finance plans in place for another month. There is some evidence of demand easing back but dealers say most buyers are happy that new cars are now good value and, more importantly, affordable.

Some difficult decisions will have to be made in the next few weeks. Many of the current offers run out at the end of the month and any schemes put in place now will have to run through the lean summer quarter before September.

Manufacturers will be hoping to maintain the current momentum and also persuade customers to forward order for the new plate change.

The forthcoming general election will slow demand slightly and there continues to be a steady downward trend in interest rates – banks and other lenders are beginning to take advantage of this (see below).

Against this background it seems finance schemes that give a clear customer benefit – such as 0% interest rate – are most likely to survive. The banks cannot compete because they do not control the new car margin and the carmakers avoid any direct comparison with interest rates.

At the same time, customers are tied to list price and the finance itself is relatively cheap to provide because base rates are so low. This route is now being adopted by Daewoo, Fiat, Mitsubishi, Nissan and, to a certain extent, Vauxhall.

Vauxhall is also still offering price cuts (disguised as Customer Savings) which suggests the message about cheaper new car prices is still not getting through. The only other carmaker openly offering discounts is Citroen which has seen demand for its Xsara Picasso models soar as a result.

For the other volume manufacturers, conventional finance such as hire purchase is generally available around the 8.9% to 9.9% range which is competitive with the high street. This means Ford, Peugeot and Renault dealers should be able to advertise some attractive deals.

Loan Amount Lender APR Monthly Repayment
with PPP
Monthly Repayment
Without PPP
£2,000* Abbey National 15.9% £78.27 £69.18
Barclays 17.9% £82.70 £70.98
HSBC 17.9% £81.88% £70.89
Lloyds-TSB 19.8% £83.35 £72.16
NatWest 20.9% £84.09 £73.44
£5,000 Abbey National 10.2% £182.22 £160.75
Barclays 15.9% £201.07 £173.26
HSBC 13.9% £193.98 £168.68
Lloyds-TSB 15.9% £198.35 £173.03
NatWest 12.9% £190.68 £166.54
£10,000 Abbey National 8.8% £356.76 £315.51
Barclays 13.9% £390.71 £337.99
HSBC 10.9% £371.89 £324.52
Lloyds-TSB 15.9% £396.69 £346.07
NatWest 10.9% £371.56 £324.51
£15,000 Abbey National 8.8% £535.14 £473.26
Barclays 11.9% £568.97 £494.14
HSBC 9.9% £549.50 £480.33
Lloyds-TSB 15.9% £595.04 £519.10
NatWest 9.9% £549.98 £480.34
Source: Automotive Management**

* RAC: first three months' payments deferred

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