THE creditworthiness of used car buyers returning to the market after the coronavirus crisis markedly exceeds that seen before the pandemic took hold.
Startline Motor Finance said that credit scores seen over the past few weeks are higher than in Q1 of 2020, as are deposits, overall vehicle values and a range of other key metrics used by motor finance companies to assess applicants.
Chief Excutive Paul Burgess said: “This is a very definite trend and indicates that the post-lockdown used car motor finance market is actually already quite different from that seen before the coronavirus crisis.
“One reason is perhaps more obvious. Most of the used car buyers currently in the market are people in a secure financial position and are comfortable with the idea of taking out a new finance agreement.
“Those with much less solid economic prospects have effectively removed themselves from the market for the time being, presumably to wait and see how their situation pans out over the next few months.”
However, Burgess said there had also been notable developments surrounding the changing structure of the motor finance sector that were having a noteworthy impact.
“At the top of the market, prime lenders are tightening their underwriting because of a generally cautious attitude towards overall economic prospects and this has a cascade effect on the whole market. As a lender that sits just behind these first line of providers, we are now seeing applicants coming to us who are more creditworthy in greater numbers.
“In addition, this extremely restrained approach to the motor finance market means that other motor finance companies in our particular space are reducing their presence and appetite for lending.
“What we have pursued is a very stable approach to lending, based heavily on a largely unique, flexible prime underwriting approach that we have developed over a long period of time. While we have changed our metrics a little, they remain much the same as before the crisis.
“What we can say at this point is that the initial burst of pent-up business that was seen when car dealers reopened after lockdown appears to have now peaked and the market is settling at what we hope is an ongoing and sustainable level.
“As for people with lower creditworthiness returning to the market, much probably depends on the shape of the next few months. If unemployment balloons in the way that some economists are predicting, consumer confidence will undoubtedly be affected and sentiment will be weakest among those with the least secure incomes.
“However, there is a possibility that things will work out better. The Bank of England is predicting a V-shaped recovery and that would presumably see these car buyers re-engage much sooner.
“This type of recovery would probably also see prime lenders return to a level of credit appetite that more closely matches the old, pre-coronavirus norm. For them, as for everyone, it’s a question of how quickly the used car market and the economy in general reaches a condition that looks relatively stable and predictable.”
