Rising interest rates and the cost of living squeeze are set to drive up default levels in consumer credit – while not immune from such changes, the ‘secure’ nature of HP and PCP lending has seen dealer finance remaining active during previous periods of economic stress. 

After many years of a low-interest, low inflation economy, which will be new for many consumer and dealer personnel, MotoNovo Finance Managing Director Karl Werner is keen to reassure dealers that dealer finance remains competitive in pricing and acceptance levels for many customers, as he notes;

“Recent interest rate rises, designed to address inflation, impact all lending. According to recent Bank of England data, personal loan rates rose 60 basis points in April alone, ahead of the latest base rate increase. The Bank has also reported that defaults on unsecured lending are expected to increase in Q2. Such an outcome is likely to see a more prudent approach to unsecured lending.”

The increase to a 1% Base Rate by the Bank of England in early May, the highest level for thirteen years, is a trend that may continue. The Bank of England’s chief economist warned that more interest rate rises may yet be needed to curb inflation1.

While not immune from the economic backdrop, Karl points out that at times of financial turmoil, as seen during the initial stages of the pandemic, the ‘secured’ nature of dealer finance can make such finance accessible to many people. Going the extra step - risk-based pricing - such as that available through MotoNovo’s MotoRate model, delivers an option that, because an approval APR is tailored to each borrower’s credit circumstances, provides accessibility and fairness, which is ideal in light of the prevailing economic challenges. Karl concludes;

“PCP and HP finance are highly appropriate vehicle financing options. The inherent secure nature of the products delivers high acceptance levels and competitive interest rates. Low unsecured personal loan representative APRs are an option for consumers. However, lenders need only offer such rates to a minimum of 51% of successful loan applicants to comply with regulation; the rates are not universal. It is also a choice that does not share the unique consumer protection of HP and PCP finance and may not offer the high loan values often associated with a car purchase. Dealer provides a compelling choice for many would-be car buyers.”

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