A tale of two extremes

While the FCA has the industry working overtime on themes such as affordability and protecting vulnerable customers, the age old art of credit scoring remains as important today as it did in the past. At least for the majority of the market, that is.

From prime down, a customer’s credit history acts as a useful way for companies to determine the risk a customer will pose, whether the cost justifies the risk, and how much to charge as a result. As Motor Finance found out this month, however, as you approach either side of the extremes of money lending, credit history becomes less and less relevant.

On the one hand, you have the prestige car market. As we found out speaking to new prestige lender JBR, at this level of lending, a number of factors render credit checks less useful. For example, a lot of the consumers who buy these cars may typically use cash, and as a result lack a credit history, or they may not be on the electoral role.

As a result a number of high net worth individuals would potentially fail a credit check, despite potentially having enough net worth to buy the car in question being financed several times over. As such, companies such as JBR need to take what they describe as a more ‘holistic’ view of an applicant, rather than relying on a credit check.

On the other hand, some subprime companies, such as Credit 4 Cars are also more interested in affordability than credit history. Part of the reason for this Motor Finance was told, is that credit scores reflect the past.

As a result, the lender receives business from those who have been rejected by other companies as a result of past difficulties, but are now in a position to be able to afford a loan. The system means Credit 4 Cars needs to be extremely diligent in its affordability checking, but means people are able to buy cars that might otherwise remain without a vehicle.

Regardless of where on the credit spectrum lenders lie, chances are they are fairly confident about the next six months, if our inaugural confidence survey is anything to go by.

Asking the opinions of lenders, brokers and dealers about their predictions for the next half a year, we’ve found almost unanimous confidence from the industry in terms of car sales, business growth, and general performance.

Those of you who read the editor’s letter on a regular basis will probably have picked up on the fact that I share this optimism. At some point there has to be a ceiling to both penetration and new car sales, but we don’t seem to be there yet. Once again this is a magazine packed with news of companies and people buying into the industry, suggesting this confidence isn’t just coming from those working in Motor Finance, but also from the general industry.

One new face to pay particular attention to this month is that of is that of Adrian Dally, the new head of motor finance at the FLA. We had the chance to chat to him, and have an interview with him in this issue. This is an exciting time to be joining the industry, and Motor Finance would like to wish him all the best in his new role.

Motor Finance awards

I would like to end with a quick note to mention the Motor Finance awards. You can find out more here: http://bit.ly/1z5p0nq, but suffice to say there are a number of categories open for lenders, intermediaries, IT providers and so on. Given the growing number of companies involved in motor finance, an international award may well help you stand out, and you’ll get a shiny trophy to boot.
Best of luck to those taking part.