Banks and other direct lenders are to step up their attack on the motor finance market after predictions of bumper sales in September.
John O'Connor, head of personal financial service at American Express, said: “We expect to see a significant rise in the proportion of personal loans taken out for new cars. This will be particularly noticeable as people take advantage of the competitive rates currently available on personal loans and recent falls in car prices.”
American Express is predicting the proportion of its loans taken out for new and used car purchases will peak at one-in-three in September. The bank offers unsecured personal loans from 8.8% APR and has recently cut its typical loan rate (on £10,000) from 9.5% to 9.3% APR.
Other lenders are also taking a more aggressive approach while interest rates are low. Tesco is offering a headline rate of 7.9% and also has a £10,000 loan at 9.3% APR.
Marks & Spencer is promoting heavily its Car Buying Plan which offers to defer some of the capital cost until the end of the finance term, thus matching manufacturer PCP products. The company has reduced rates on Car Buying Plan to less than those of its personal loan. A £10,000 loan, with £4,000 deferred for three years, will cost £259 a month at 9.8% APR.
The direct lenders believe the combination of low prices and the new format registration plate change in September will drive demand. The number plate change is also expected to generate a larger stock of trade-ins than normal, pushing prices down.
Mr O'Connor said: “There is always a surge in new cars on the road as number plates change but, with the totally new format for the first time in 18 years, we expect to see greater demand. We believe customers with a personal loan are effectively cash buyers, putting them in a strong bargaining position with the dealers.”