RAC, which provides breakdown cover among a raft of other services, has launched Flexiloan a non-secured balloon loan product, in partnership with Shawbrook Bank.
Similar to PCP, Flexiloan customers pay a deposit, make monthly payments, and end the agreement with a balloon payment. Unlike PCP, Flexiloan does not feature mileage limits, and the customer owns the car from day one.
Available through RAC, customers are able to choose their deposit, monthly payments, loan term (of between 24 and 48 months) and balloon payment. Cars must be two years old and on sale in the UK in order to be applicable for the loan.
At the end of the agreement, the customer can choose how to pay off the remainder – either in one go, re-finance what is remaining of the loan, or sell the car to cover the cost of the final payment.
Speaking to Motor Finance, Paul Went, head of personal loans at Shawbrook Bank, said: “Across verticals the baseline behaviours are the same. They are looking for better value, transparency around products and no surprises. They want to know the amount they are going to pay, and with the amount they want to borrow, what does that get them.
“If we bring this back to the car finance market, other lenders and outputs of vehicles and financial products are trying to figure out how best to serve that. It’s a really interesting time to be in this space. We think there is more than enough opportunity for Shawbrook to sit in and among that.”
Alastair Crossley, of RAC Flexiloan, said: “PCP is understandably popular as it means you can drive away in a car while enjoying a low deposit and low monthly payments. However, it’s not without its drawbacks – you can’t opt for PCP finance on many used cars and there is a genuine risk of getting stung with charges at the end of the contract.
“We saw an opportunity to provide those looking for their next car with a radically different offering and one that puts them in complete control from beginning to end. Flexiloan gives buyers the flexibility which schemes like PCP offer, but then offers so much more: buyers can choose to buy any car that is at least two years old and can arrange their finance securely online, meaning there is no need for awkward conversations with pushy sales agents.
“Car buyers that opt for RAC Flexiloan also own the car from day one, unlike PCP and hire purchase (HP) plans which effectively see the buyer renting the car and then potentially getting stung by additional fees at the end of the agreement for going over set mileage limits or handing back a car in rather less-than-perfect condition.
“PCP is well-established within the new car market, with manufacturers always keen to offer deals to entice drivers – but it is in the much bigger used car market where we saw an opportunity to come up with a product that gives buyers so much more flexibility over how they pay for their vehicle.
Went added: “We saw a need in the used car market for a finance product that offers the benefits of traditional car finance products, such as PCP and HP, but gives the car owner the same control as taking an unsecured personal loan for their car purchase. As RAC has a long history of innovating to help drivers, they were the obvious choice of partner to launch this exciting new product with.”