A fight to the death in the world of car dealership

Personal loans vs dealer finance.

In a previous post, I expressed bafflement at an article warning car buyers to be wary of expensive finance arranged on the forecourt, at a time when all sorts of wonderfully inexpensive personal loan rates were apparently on offer from high street lenders.

I was baffled because half the “pricey” dealer finance providers the article was warning consumers about are owned by the same banks as the personal loans providers in any case, and because the other half are bankrolled by car manufacturers offering hugely subsidised interest rates that no sane bank would compete with.

I went on at some length about all this (I’m from the trade press… we don’t get out much), but the upshot was that, looking at the way the car finance business works, the assertion that customers should beware of forecourt finance is dubious at best. 

Of course, there’s a lot more to consider than just price when weighing up the pros and cons of two completely different financial products, but let’s face it - it’s price that matters when it comes to consumer judgement. So let’s settle this with numbers.

On the personal loan side of things, Bank of England data shows that the typical cost of a £5,000 loan has steadily risen every month for the last five years, from an average rate of 8.7 per cent in March 2007 to 15.8 per cent in April 2012.

Now, this figure is a mean of all lowest advertised rates in a given month, and does very little to reflect the actual average interest rate of personal loans underwritten in a given month.

And to be fair to the loan providers, there has been a hard core of aggressive players, supermarket players M&S, Sainsbury’s and Tesco among them, pushing in the opposite direction over the same period. In May, we tracked no less than seven lenders duking it out between 6.0 per cent and 6.3 per cent (for a theoretical loan of £8,500 over 4 years). But overall, this action has been drowned out in the Bank of England stats by the mass of more cautious lenders in the UK.

Now let’s look at what’s happening in the world of forecourt finance. As I have already alluded to, more than 50 per cent of all finance deals offered each month are subsidised by manufacturers, dropping them way beyond the competitive reach of the loan providers. Include deals where discounts or freebies are offered in terms of maintenance, service and the like, and you’re looking at 80 percent of all new car finance.

As for the remainder, a quick phone round all the big providers (who are, you will remember, major banks) confirmed that their average APR on deals actually offered to consumers currently varies between 8 per cent and 10 per cent.

OK, sure. This doesn’t look too hot compared to those 6 per cent deals from the high street. But let’s not forget that those figures are “representative” APRs: since the actual rate offered by a lender tends to vary hugely depending on a customer’s credit rating, they can only legally advertise a rate achievable by at least 51 per cent of applicants. Put it another way, and 49 per cent of borrowers end up paying a higher rate.

So: half of applicants to the most competitive loan providers are probably getting a cheaper deal than between 20 per cent and 50 per cent of new car finance applicants, to the tune of 2-4 per cent in interest rate terms. I’ll admit that there’s a certain amount of beermat mathematics involved in working this out, but the conclusion is clear: there’s not much in it.   

In all of this (and I promise I’ll talk about something different now), we’ve just been talking about the new car finance market, and customers with good enough credit ratings to be considered by the manufacturer captives and supermarket loan providers in the first place.

Next time, I’ll look at the hundreds of thousands of people who’ve been completely unable to find a way to finance a car purchase since 2008, and what on earth the industry is planning to do with them. Now that’s a struggle.

Photograph: Getty Images

By day, Fred Crawley is editor of Credit Today and Insolvency Today. By night, he reviews graphic novels for the New Statesman.

Grant Shapps on the campaign trail. Photo: Getty
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Grant Shapps resigns over Tory youth wing bullying scandal

The minister, formerly party chairman, has resigned over allegations of bullying and blackmail made against a Tory activist. 

Grant Shapps, who was a key figure in the Tory general election campaign, has resigned following allegations about a bullying scandal among Conservative activists.

Shapps was formerly party chairman, but was demoted to international development minister after May. His formal statement is expected shortly.

The resignation follows lurid claims about bullying and blackmail among Tory activists. One, Mark Clarke, has been accused of putting pressure on a fellow activist who complained about his behaviour to withdraw the allegation. The complainant, Elliot Johnson, later killed himself.

The junior Treasury minister Robert Halfon also revealed that he had an affair with a young activist after being warned that Clarke planned to blackmail him over the relationship. Former Tory chair Sayeedi Warsi says that she was targeted by Clarke on Twitter, where he tried to portray her as an anti-semite. 

Shapps appointed Mark Clarke to run RoadTrip 2015, where young Tory activists toured key marginals on a bus before the general election. 

Today, the Guardian published an emotional interview with the parents of 21-year-old Elliot Johnson, the activist who killed himself, in which they called for Shapps to consider his position. Ray Johnson also spoke to BBC's Newsnight:


The Johnson family claimed that Shapps and co-chair Andrew Feldman had failed to act on complaints made against Clarke. Feldman says he did not hear of the bullying claims until August. 

Asked about the case at a conference in Malta, David Cameron pointedly refused to offer Shapps his full backing, saying a statement would be released. “I think it is important that on the tragic case that took place that the coroner’s inquiry is allowed to proceed properly," he added. “I feel deeply for his parents, It is an appalling loss to suffer and that is why it is so important there is a proper coroner’s inquiry. In terms of what the Conservative party should do, there should be and there is a proper inquiry that asks all the questions as people come forward. That will take place. It is a tragic loss of a talented young life and it is not something any parent should go through and I feel for them deeply.” 

Mark Clarke denies any wrongdoing.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.