Cautious motorists are under-borrowing on car loans

car buyers are under-borrowing

Motorists are no longer ‘maxing-out’ on their borrowing ability, and are increasingly opt for vehicles priced below the amount of the car loan for which they qualify.

This is according to Specialist Motor Finance (SMF), which says it will be reducing the minimum amount it is prepared to lend by 25 percent, enabling customers to fund a car costing as little as £3,000.

The company says it has identified the trend after analysing over £100 million of hire purchase (HP) advances it has made through finance brokers and dealers.

Its customers tend to be those whose credit profiles preclude them from using mainstream lenders, but who are not experiencing chronic financial difficulties.

Customers ‘being shunned’

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The company believes the research points to a rise in the number of financially incisive buyers who are “being shunned” by traditional lenders because of historic or minor credit problems.

David Challinor, managing director of SMF, said: “I think we are witnessing a reluctance among some customers not to take their borrowing to the limit, even when this has already been set at a realistic level.

“They would rather sacrifice the size of car they buy, or drop down a level of refinement, in order to create a bigger buffer between their income and outgoings.

“Even five-figure amounts we approve after demonstrating affordability are often drawn down as a lesser sum after the buyer imposes their own traffic light system for the loan.”

Finance drives used car growth

The market saw a 6.4 percent increase in used car finance in April, according to lead management experts Dealerweb. Chief executive Martin Hill said: “Used car operations continue to provide opportunities for growth as the new car sector continues to see headwinds.”

Meanwhile, the point of sale (POS) new car finance market reported a three percent fall in value and a five percent fall in value in March.

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