Car finance booms as other lenders shun borrowers
The number of consumers taking out car loans from vehicle dealerships has risen sharply over the past 12 months due to the “credit crunch”, as traditional high street
lenders continue to raise both their interest rates and their rejection rates!
The news comes as Volkswagen said last weekend that it had hit its 2008 target of £1bn worth of car loans five months ahead of schedule – in spite of an overall slump in car sales in the UK.
While car finance has historically been viewed as expensive compared with personal loans available in the wider market, most high street lenders have been significantly increasing their interest rates over the past year. According to Moneysupermarket.com, the comparison website, the average of the top five cheapest personal loans is currently 7.7 per cent, compared with 6.5 per cent this time last year. Furthermore, lenders are rejecting many more loan applications this year, accepting only those with the very best credit ratings.
Tim Moss, head of loans at moneysupermarket.com, said the success of the car finance products was driven by two factors. "Firstly, personal loans are extremely hard to get at the moment, but with car finance, your loan is secured against the metal, so it's a lot less risky for the company. Secondly, while people used to turn their noses up at car finance because they could get a loan for 6.5 per cent somewhere else, they're now going away and either realising that car finance is cheaper than any personal loan they can get, or their only option."