An investigation into car loan practices has spooked consumers, but there’s no reason to avoid buying, say experts.
Car buyers were urged not to panic today over news of an investigation into how some car loans are handled.
Heath Downes, general manager at Chapelhouse Preston stressed drivers can buy in confidence using a finance agreement, provided they carry out a few simple checks before signing.
The Financial Conduct Authority (FCA) is currently conducting a study into the car lending market to establish whether firms should perform more rigorous financial checks on buyers before allowing them to sign for a loan.
It is seen by many as a way of cracking down on unscrupulous firms arranging finance at unreasonable rates.
However, Mr Downes said the majority of dealerships are already acting responsibly and stressed buyers to do some research before buying.
“Firstly, they should ask for all the information so they can make an informed choice,” he said.
“Make sure the dealer is FCA regulated. Customers need to be confident they are dealing with regulated firms where fair treatment of customers is central.”
He said to look for whether firms were following codes of practice set by bodies like the Retail Motor Industry Federation (RMIF).
In the last decade, the number of cars bought using finance has increased from one in five to four in five, according to industry figures.
The FCA study was launched after concerns were raised about the difference in the average car finance interest rates being offered at dealers across the country.
“We are concerned that there may be a lack of transparency, potential conflicts of interest and irresponsible lending in the motor finance industry,” it said in its 2017/18 Business Plan.
“We will conduct an exploratory piece of work to identify who uses these products and assess the sales processes, whether the products cause harm and the due diligence that firms undertake before providing motor finance.”
Honest and transparent
Mr Downes countered that most car dealerships are acting responsibly in their finance deals.
“There is nothing wrong with selling at a particular annual percentage rate (APR), as long as we are open, honest and transparent,” he said.
“We do this by informing the customer we are a credit broker and not a direct lender and giving them enough information for them to make an informed choice.”
He said an average interest rate of 9.6% APR was ‘competitive’.
“Most high street banks would only offer a low interest loan if borrowing a large amount of money – generally £15,000-£20,000 plus. Car finance rates apply to all vehicle prices.”
His views were backed up by the Finance & Leasing Association (FLA) – the leading trade body for the motor finance sector in the UK.
It said it would work with the FCA but insisted: “The motor finance industry is committed to responsible lending and to high standards of customer service.”
The FLA also released figures showing car finance growth had started to moderate in 2017.
Geraldine Kilkelly, head of research and chief economist at the FLA, said: “Growth in the consumer car finance market has moderated in the first five months of 2017, with overall new business volumes flat compared with the same period last year.”
Car finance remains a popular option for many buyers, who enjoy being able to get a newer or higher-specification model than they would otherwise be unable to afford, as well as spreading the cost, Mr. Downes said.
Chapelhouse Motor Group is the main Suzuki dealer in Preston and the surrounding areas. It offers massive discounts on new and used models with a free MOT test for life and 0% finance on over 1000 used cars.
For more help finding and financing your ideal car call 01772 364137 or pop into the showroom in Blackpool Road, Preston.