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Motor finance lenders to tighten eligibility criteria

Darren Sinclair

Motor finance providers are likely to tighten the criteria on which they base their lending, in order to minimise their risks during the cost of living crisis.

Online tools that enable consumers to check their likelihood of approval will, therefore, become more important, according to iVendi.

Darren Sinclair, CCO at the motor retail technology business, said that as personal finances were squeezed further over the coming months, car buyers would take greater interest in the motor finance choices available to them.

“Fewer people meet the requirements of their preferred lender and may end up turning to their second, third or fourth choice, or even deciding not to buy at all,” he explained.

“The advantage of online eligibility checkers is that they allow potential buyers to look at a dealer’s lending panel for a variety of motor finance products. They can see instantly and at a glance their likelihood of approval using a traffic light system – all without leaving a footprint on their credit file. It’s a much softer and friendlier process than making a formal application,” Sinclair added.

A number of dealers that iVendi works with have already incorporated the company’s eligibility checking tool into their normal customer journey.

Sinclair said: “Eligibility checking works well when it is built into an online buying process, being offered as a no-cost option to customers who would like to buy a car and want to gain a full understanding of the motor finance options to them.

“It’s a question of working to understand how the cost of living crisis is likely to affect the customer mindset. Buyers will almost certainly realise that their chances of approval from their preferred lender are lower and will want a greater understanding of the situation.

“At a time when people are feeling less confident about their finances, there is a strong likelihood they will find a high degree of comfort in having greater amounts of quality information available to them online. Eligibility checker technology makes this possible without them needing to speak to a person or face the embarrassment of potential finance application rejections.”

As the automotive market passed the halfway point for the year, there continues to be pressures that captive finance houses need to respond to. The cost of living crisis is hurting consumer confidence, interest rates are at their highest level for 13 years and customers are pulling back on their monthly spending.

Increasing interest rates are having a detrimental impact on the cost of new car finance in the UK. Annual percentage rates (APRs) of more than 6% were once the hunting ground of sub-prime used car finance lenders alone, yet there are many captive banks pushing up figures above this level.

AM’s own data looking at some Q3 representative examples from VW, Vauxhall and Kia all have offers above 6%.

The Bank of England raised interest rates by 0.5% at the start of August, which took rates from 1.25% 1.75%, in a bid to curb inflation at 9.4% and rising.

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