Credit union car loans are becoming a reality.
7.5m people bought 9.2m cars in 2021. 8 in 10 of those were second hand. The average asking price for a second hand car was up 11% to just under £16,000.
Credit unions have struggled to take advantage of this demand. In Great Britain fewer than 1% of applications (by number) are for the purchase of a car.
Despite this, applicants for car loans consistently have the highest credit scores. Furthermore, a significant proportion have near-prime or prime credit scores.
Of course, it’s hard to forget that it would take 30 loans of £500 defaulting to match just one £15k loan going bad. However, new legislation de-risks this proposition by offering some security for such loans.
The Financial Services and Markets Bill is at its second stage reading. It liberalises the rules around lending so credit unions can provide conditional sale agreements.
A conditional sale is similar to hire purchase. Loan agreements would include the condition that the goods don’t belong to the borrower until they’ve paid the the final instalment. Until that point the lender may repossess the goods if the borrower falls behind with payments.
To an extent the loan is secured. Because of this lending risk falls.
An easy way to assess car loan applications
NestEgg has decision rules for different kinds of loan product. For example, a large car loan might require a higher credit score. Additionally, because the payments are higher the monthly debt ratio will be an important factor to help assess disposable income. Previous Hire Purchase agreements need to be evaluated. You may be looking for stability with applicants on the electoral roll for e.g. more than 3 years.
Obtaining a valuation of the car and ensuring that the vehicle is not subject to another Hire Purchase agreement are two additional items of data that would ensure the security of the loan can be validated.
An easy way to get applications
As a registered broker NestEgg could provide a portal from which to receive applications. These applications can be soft credit checked and a line of credit suggested to a member, so they have a budget to shop with. Once they’ve selected a vehicle the application can be ‘hard checked’ for a loan with an almost certain accept decision.
Join the discussion
The legislation is likely to be in place early next year. And there’s a lot of planning to make the most of this opportunity. Because of this, NestEgg will be facilitating a roundtable of credit unions interested in offering conditional sale agreements. Stakeholders supporting growth in the sector are also welcome. The meet up will give participants an opportunity to share ideas and discuss any work undertaken to date. To inform the debate., NestEgg will be sharing data on current car purchase applications.
If want to explore the opportunity that conditional sale agreements offer for car loans and credit unions, please sign up below.