Car crash or car cash: The challenges facing P2P lenders in motor finance
- Marc Shoffman
- On January 11, 2018
TWO OF the largest peer-to-peer lenders have identified the car finance market as an area for growth, but how smooth is the road ahead?
Leasing, personal contract plans, hire purchase and personal contract hire have become popular ways to purchase vehicles.
RateSetter revealed last year that it saw after entering the market when it acquired Vehicle Credit Limited out of its parent company’s administration as part of its wholesale lending “interventions”.
Meanwhile, Zopa said early last year that it sees potential in the secured auto finance sector because there are healthy levels of demand but a generally poor customer experience.
But there are potential challenges ahead in the car finance space.
Regulators have expressed concern about the growing use of car finance.
The Bank of England claims car finance has grow annually by 20 per cent each year since 2012.
The Finance and Leasing Association (FLA), which represents lenders providing car finance, says more than 86 per cent of all private new car registrations in the UK were financed by FLA members in 2016.
The Financial Conduct Authority (FCA) has also said it is looking at this area and monitoring whether firms are lending responsibly and whether consumers understand the risk and pricing.
It was announced at the end of December that the FCA was investigating Provident Financials’ car finance division Moneybarn over the way it assesses customer affordability.
The FCA has promised an update on its wider work across the car finance sector during this quarter and has said it will consider whether interventions are necessary. This could dampen the market.
Driverless cars may have once been a pipedream but the government seems to believe in them as well as electric vehicles. It is funding both the development of autonomous vehicles and a network to support electric cars.
This may hit demand for car finance in the long run, especially as there is no clarity over whether people would own their own driverless car or just request one as you would with a taxi hailing app such as Uber.
Chancellor Philip Hammond said in his Autumn Budget that he wanted to UK to be ready for driverless cars by 2021, but there are concerns over how the road and electricity network would cope, particularly if enough charging outlets could be provided.
The end for petrol and diesel?
The government is trying to cut down on vehicle emissions by increasing the tax on diesel cars.
It has also announced that the UK will ban the sale of petrol and diesel cars from 2040.
This already seems to be feeding through to car sales.
The Society of Motor Manufacturers and Traders reported new car sales were down 5.7 per cent in 2017, with a 31.1 per cent drop in diesel and 2.1 per cent drop in petrol purchases. They fell for nine consecutive months during 2017.
Additionally, the FLA has revealed new car business volumes in the consumer new car finance market fell by eight per cent during November.
Deals were up in the used car market though, increasing 16 per cent annually in November 2017, the FLA said.
People will always require transport so there will definitely always be a market for car finance, whether it be autonomous or electric. Someone will need to be buying it.
As the market changes P2P lenders may find it is their flexibility and ability to adapt quickly – unlike bigger lenders with large legacy systems – that puts them out in front.
Read more: Car finance drives P2P growth in Australia
TagsBank of England car finance electric cars Finance Leasing Association Financial Conduct Authority Ratesetter Zopa
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