He believes the current approach of lending on the age of the vehicle could be flawed and should be better tailored to a car buyer’s personal circumstances.
Lending decisions could then be made quickly and at competitive rates while the sale of a car was being discussed with a customer.
Under the existing system, said Cooke, there was no assurance that someone asking for a bigger loan was more able to repay the money than another borrowing a lesser amount.
“Logically it makes sense to link the risk and the rate of interest to the person doing the borrowing and their risk profile, rather than to the vehicle,” said Cooke in the Black Horse Motor Finance-commissioned report.
He believes the priority is to determine an appropriate rate using the finance company’s credit ranking process.
This would mean the finance rate quoted would be broadly be in line with a rate quoted by a high street bank or internet provider, tailored to the customer’s proposed purchase.
“This gives the finance house and the dealer the flexibility to offer a rate for each customer based on their profile,” said Professor Cooke.