Dealers should consider pricing non-prime motor finance lower in order to win more business and retain customers, independent lender Startline Motor Finance has said.
Pricing in this sector can go as high as 40% APR, however Startline chief executive Paul Burgess said this increases the risk of the customer defaulting, as well as making customers less likely to buy the finance in the first place.
Describing the high pricing as ‘neither appropriate’ and ‘counterproductive,’ Burgess added: “However, there has been something of a shift in the finance sector in the last year and we are seeing a small but growing number of dealers pricing non-prime much more sensibly. This works well for them and for their customers.”
On top of this, he suggested there was an ethical argument for not writing business that forced people into very high levels of APR: “If you can only write the business by charging an APR of 30-40%, then there is a question mark over whether you should be writing it at all. Your potential customer is undoubtedly a poorer risk and has a higher chance of defaulting. Should you be part of that process?”
Part of the reason Burgess sees this opportunity for non-prime lenders to offer lower rates is because a number of people are being rejected from prime lenders because their lifestyles don’t fit into the prime lending criteria.
He said: “Prime motor finance lenders tend to have very strict criteria – miss them and you will be rejected. Often, the only alternative is a non-prime provider that generally wants to charge a much higher APR.
“This is a very binary approach that places customers in one of two camps. In reality, a large proportion of used car buyers fit into neither, something that is becoming more apparent as, for example, more people rent rather than buy their home, affecting their credit score.”