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Motor finance credit checks' reduced relevance post-coronavirus

Startline Motor Finance chief executive, Paul Burgess

Car dealers will return to a trading environment where tradition motor finance credit checks have reduced relevance as a result of cash-boosting measures introduced to boost personal finances.

Startline Motor Finance chief executive, Paul Burgess, believes that Government’s fiscal measures, combined with a variety of payment holidays and deferrals designed to mitigate against the effects of the COVID-19 coronavirus, could have a marked effect on the automotive sector.

Burgess said: “Whenever things return to relative normality, we’ll be looking at a UK working population, both employed and self-employed, whose personal financial situation will not be as simple to read as previously.

“Motor finance companies are very likely to have to think again about how they assess individual creditworthiness and we may well find that the market segmentations that we use now such as prime, near-prime and sub-prime have shifted.”

Last month the Finance and Leasing Association’s (FLA) head of motor finance, Adrian Dally, urged motor finance providers to support motorists to keep them in their vehicles as belts are tightened during the current health crisis.

The Financial Conduct Authority (FCA) has announced temporary measures to give regulated firms the flexibility to provide emergency relief to those facing payment difficulties and is expected to reveal guidance specific to motor finance including leasing this week.

Burgess suggested that, despite unprecedented government intervention, there was likely to be a fairly steep rise in unemployment which meant that many vehicle owners continued to feel the financial strain for some time to come.

He said that the shift in customer profiles and circumstances could mean that more motor finance companies move to something akin to the Startline model, which sets aside a one-size-fits-all scorecard approach to talk to individuals more about their finances.

“We’re seeing predictions of the unemployment rate doubling from its pre-crisis rate to about 7%, which is clearly a significant jump. The perception that employment has become more precarious will also create difficulties,” he said.

“Our whole near-prime business model is based on being able to use a combination of technology and people skills to recognise applicants who remain good credit risks despite some points in their finances that don’t match a traditional prime lender template.

“Looking forward, we believe that this is going to be an extremely useful skillset for us in the post-crisis world.

“While it is difficult to predict how the used car market will bounce back, there will undoubtedly be a degree of pent-up demand released, so the motor finance situation is something that may need to be resolved quite quickly and at short notice.”

Yesterday (April 14), Stephen Haddrill, director general at the FLA, urged Government and the Bank of England (BoE) to take action to support the non-bank lending market during the ongoing COVID-19 coronavirus lockdown.

He said: “Support needs to be provided to non-bank lenders to help them deal with the huge cashflow drain from forbearance, with Covid-related requests growing by more than 1000% in the week commencing March 16, followed by a further 249% increase the following week.

“This sector needs urgent Government help to ensure that it is still in a position to lend to individuals and businesses when the current market disruption ends, because without their input, the UK’s economic recovery will be much slower.”

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