In the market for a car or van in the year ahead?
If that is you and it has been a while since you were last ready for a change, then be prepared for a market that is markedly different for car buying and arguably for financing as well. Unsurprisingly, the changes have been driven by the global pandemic.
Over the last twenty four months, the word ‘unprecedented’ has been linked to COVID-19 and its impact socially, economically, digitally and most of all in peoples’ health and welfare. Pretty much no area of our daily lives has been unchanged by the pandemic.
People shunned public transport in favour of cars, often used cars, and many of these purchases were started and sometimes concluded online. The shift to a digital car buying and financing journey has accelerated. Dealer showrooms have reopened, but the reality is that discovering their car and dealer is happening online for more people. Similarly, financial services have moved increasingly online.
The Rising Price of Used Vehicles
An unexpected change for many has been the rise in used car prices. As car makers worldwide shut during lockdown periods, so did other vital parts of their supply chains. In short, essential microchips, which feature multiple times in most new cars, have been in short supply globally. The result has been a long wait for new car buyers, with delays of up to six months reported by some retailers.
Lengthy delays in the availability of new cars have seen potential buyers switch to used vehicles. Now, add to this demand from people switching away from public transport. When combined with traditional used car buyers, many of whom delayed a purchase during initial lockdown periods and we see strong consumer demand. However, this is not being matched by supply.
Almost two years of sluggish new car sales have and will continue to limit nearly-new supply levels. Used car supply from the UK is down around 35 percent as the UK experiences similar supply/demand issues. The result has been unprecedented used car price inflation, with dealers having to pay well over the odds for what vehicles are available. Right now, there is less stock on dealer forecourts and inevitably, it has risen in price. According to a report in October, used car prices had risen nearly 50% higher than they were just before the onset of the pandemic in January 2020.
Looking to 2022, there is little sign that used car values will realign to previous levels any time soon; the supply issues look set to be a feature well into the year and quite possibly beyond. The positive news for would-be car buyers is that if they have a car to part-exchange, its value will also have risen. However, without a part-exchange would-be buyers may need to realign their budgets.
The Importance and Challenge of Car Financing
When it comes to budgeting, for the vast majority of car buyers, this will involve sourcing finance. An estimated 80 percent of people will need to borrow money from one source or another to finalise their purchase. The lending market has also seen change over recent times.
The two primary sources of finance are personal loans and dealer finance. Typically, personal loans are ‘unsecured’ where dealer finance is ‘secured’ on the vehicle. An unsecured loan carries a higher risk for a lender and tends to be more easily accessed by the most creditworthy. The security of the car with dealer finance commonly results in a higher acceptance level; in short, overall, people are more likely to be approved for dealer finance.
In terms of interest rates, it is essential for buyers to be aware that interest rates may vary depending upon the perceived risk of the customer. Higher rates can apply to less creditworthy applicants, and with some loan rates, the interest rate can vary depending on the overall base rate, whereas others might be fixed for the duration of the agreement.
The key message for buyers is always to ensure you understand the details of the finance being offered.
The Impact of the Pandemic on Car Financing
As often happens in times of economic turbulence, the pandemic saw many lenders retrench and restrict their lending activities. In 2021, two notable banks even went an extra step and announced that they would withdraw entirely from the Irish market.
While mainstream lenders have returned to the market, the impact of the pandemic on many peoples’ lives financially has been significant, weakening their credit status. For all too many, the legacy impact on their finances and for their longer-term credit status is likely to remain for some time. However, there are specialist car finance providers who may be able to help such people and enable them to start rebuilding their credit status at the same time. The key for such people is to begin by considering carefully and realistically what they can afford and taking a structured approach to how they apply for finance. Simply applying to a range of lenders could see such applications being rejected and people should be aware that such declines could weaken the applicant’s credit status even further.
The Role of Specialist Car Finance
When it comes to car financing, Ireland has seen the emergence of specialist lenders, including lenders who can consider people that traditional lenders might underserve. One of these is award-winning motor finance lender Bluestone Motor Finance. The business’ Managing Director Donal Murphy is very clear that Bluestone is happy to consider a very broad range of would-be car buyers, opting to buy a car from a dealer, noting;”
“We are open to helping pretty much all car and van buyers, provided you are over 21 years of age. This includes; people with a perfect track record, poor or no credit history, people with past or unresolved debt issues, those who might never have used credit previously, people who have moved to Ireland recently, self-employed people, small and medium-sized businesses.
At Bluestone, we bridge the digital/human divide when it comes to car finance, combining digital expertise with one-to-one good old-fashioned conversations to get to know people and their circumstances where appropriate. We don’t stop at the ‘computer says no’ and while we cannot always say yes, I believe we go that extra mile whenever we can.”
It is an approach that has seen Bluestone helping a record number of car buyers over the last twelve months.
Donal’s Tips on Applying for Finance
When it comes to financing a car or van, the majority of people do need to borrow some or all of the money to make their plans a reality. A number of options are available, including the type of Hire Purchase agreement with an interest rate set at the outset which is what Bluestone offers.”
Before applying for finance, it is essential to consider what you can afford on a monthly basis and your credit status. In terms of interest rates, the best car finance deals tend to be available to the most creditworthy people or, in the case of a new car or van, may relate to a special offer backed by the car manufacturer.
In all circumstances:
Take time to understand the car finance options available to you
Be realistic on your monthly budget
Read all the paperwork to understand the terms and conditions
Assess lender reviews such as those available at Trustpilot
Prepare any evidence that may be required, such as proofs of address and income
Avoid multiple credit applications – it can weaken your credit rating
Be honest with the lender
And finally, if you don’t know, ask questions, reputable lenders like Bluestone will always seek to provide answers transparently
As Donal reflects; “Talking to a lender, such as Bluestone, early in the process for help and guidance can make the whole journey so much easier and help to avoid the risk of buying just on the emotional appeal of a car that ultimately may not be affordable.”
Technology in Car Buying & Financing Today
While Bluestone is happy to talk to car buyers about their financing plans, around 90 percent of car buyers rely on online searches to discover their next car or van before making purchase decisions. It can also be the place where they discover their finance and enjoy a complete end-to-end, self-serve car buying and financing experience.
The fast-growing used car marketplace Sweep is an online app offering over 20,000 vehicles from over 500 of Ireland’s trusted dealerships. It provides a distinctive, highly tailored online car buying experience that in just eighteen months has captured tens of thousands of active monthly users. It has teamed up with Bluestone Motor Finance to provide a financing option that people can use where and when it suits them. As Sweep’s CPO Shane Ennis observes, it is an ideal link that is helping both highly creditworthy people and those whose credit status may not make their financing journey as straightforward as they might like.
“The Sweep car buying experience fully focuses on helping the TikTok generation find and buy cars. The car-buying journey is distinctly different and more immersive. Access to finance is a critical part of the journey for most car buyers. By collaborating with Bluestone Motor Finance, we have added digital access to finance with a real-life human touch which means that more people will be able to gain that all-important finance approval.”
Sweep is unique in that it has been purpose-built to meet the reality that most internet traffic is now mobile-based. The innovative app is designed to be easy and seamless to use, enabling people to discover vehicles that match their requirements quickly.
Customers can shortlist the cars they like and get rid of the cars they don’t like. It means they won’t keep seeing the same vehicles they have already swiped left on. The app shows prospective buyers one car at a time, and by swiping right, a car is added to favourites to be considered, swipe left and it will be hidden.
Once a car is shortlisted, car buyers can message the dealer via in-app messaging and all communication is directed back into the app. In short, it is all elegantly simple.
