Almost 20% of all used car customers can be described as ‘near prime’, according to research by Startline Motor Finance.
The company has based the finding on analysis of applications rejected by conventional prime lenders but which would be written by Startline under its flexible lending model.
Paul Burgess, chief executive of Startline, said that the findings meant dealers could potentially be passing one in five customers straight from prime to sub-prime lenders if they had no third option.
He explained: “For dealers whose panel does not include a spread of risk appetites among lenders, the drop from prime to sub-prime is very vertiginous with the APR rate rising by as much as double figures.
“Our approach is to take a closer look at the circumstances of the person making the finance application, often entering into a dialogue with the dealer. The thinking is that if we can gain an understanding of that person’s overall financial position, then we can potentially work to arrive at a solution that meets their needs.”
Burgess said that one of the key issues surrounding lending decisions was changing home ownership and employment patterns.
“There are all kinds of ways in which the factors traditionally used to credit score people no longer apply to many who are actually pretty solid applicants. These include the decline in home ownership, the rise in contract and temporary working, and a host of other general changes to peoples’ overall economic circumstances.
“This would place them outside of the scope of a prime lender but, in many dealerships, the only other solution is a sub prime. Startline’s flexible lending provides a further option,” he added.