Funding line with German bank aids finance provider, says group managing director
Credit 4 Cars has more than doubled its customer base since the start of 2013, according to John Webster, group managing director at One Stop Car Credit, parent company to both the subprime lender and online dealership Credit Car Sales.
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The company now has a number of dealers, independent of its own dealership, on its panel and is financing third-party introductions.
Having established the "building blocks" for expansion in 2012, the growth follows a funding line established with a German bank in January this year. Although Webster said the bank could not be named, the agreement had "enabled us to grow the financepropositions on our own cars as well as extending the proposition to third-party dealers".
Webster said One Stop "knew the model would work, we just needed the funding to realise it".
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By GlobalDataThe company provides hire purchase – "straightforward, no balloon payments" – but has extended its maximum term from 36 months to 48, and Webster credited the new funding facility as the platform from which the company could "put forward the case" for extension.
"We saw an opportunity to offer a better-quality car to customers, but over four years to keep affordability within reason," he said
"We have a mantra: ‘Cars they need, rather than cars they desire.’ It’s about the practicality of sensible family cars."
Although largely dealer-direct, the company has also added "one or two" brokers performing introductions to customers, although Webster explained this strategy is in its "early stages". Until the start of 2013, the company was "constrained by the absence of funding. Now, working with brokers is not something we discount."
‘Non-conforming space’
Begun in October 2011, One Stop Car Credit combined online dealership Credit Car Sales with finance provider Credit 4 Cars as an "integrated solution" to refer individual car customers to finance, according to Webster. All stock is available online and the company operates in the subprime market; the "non-conforming space, providing finance for customers with credit difficulties".
The combination allows the company to talk customers through a sale. If the purchase is agreed and the sale approved, the agreement will then be subject to finance underwriting.
"That was how it all started," with private funding, moving "reasonably slowly", said Webster.
Concurrently, the expansion of the non-prime space has allowed the company to increase its business: Subprime is "a big marketplace going by Finance & Leasing Association numbers", said Webster, who added approximately "one-in-four people struggle to get finance" today in the UK. "That’s a potential annual market of 200,000 used cars."
With several lenders entering the subprime market in 2013 and established funders expanding their outlets or naturally growing their books, Webster said it was the "size of the opportunity" and "the potential of the subprime market that draws everybody in". From such potential the company was "not looking at taking a massive market share but we can have steady growth".
Operating on a model of "close relationships with a small number of dealerships, rather than thousands of distant relationships", the aim now for Webster is to make those relationships even closer as well as growing close relationships with customers.
Internally, One Stop aims to build such ‘close relationships’ by means of individual underwriting, rather than credit scoring, and provide the company with a "greater opportunity to say yes or no", explained Webster. "By the same token, you have to get your underwriting right. Otherwise, this is a market in which companies might not lend responsibly".
For Webster, who holds previous experience of the non-prime market in both mortgages and secured lending, "there’s no point lending money to somebody who can’t pay it back."
Although an individual may appear able on paper to afford finance, "lightning can strike twice" and those who have had misfortune before in their finance may experience it again, he observed. Therefore, business development managers at the company will meet customers face-to-face, often at dealerships.
Meeting customers
Webster estimated 99% of hire purchase agreements with customers include a representative of the company meeting the customer and/or talking them through finance by some means. If the car is delivered to the customer, the underwriter will speak to him or her by phone; if customers comes to the One Stop headquarters in Basildon to pick up the car, a company representative will meet them to discuss the agreement.
"We are doing our damnedest" to make all terms and conditions of agreements apparent to customers, on top of all the pre-contract information and all dealer-led introductions, said Webster. One Stop also has full policies in place regarding Treating Customers Fairly, full transparency over fees and changes and the company is a Consumer Credit Trade Association member.
Although he "wouldn’t be so complacent as to say it is all plain sailing", Webster backed the company’s "robust" underwriting policies and his experience in dealing with the Financial Services Authority to serve him when regulation passes to the Financial Conduct Authority.
Pent-up demand
On the future of subprime, Webster said the market was currently meeting "a lot of pent-up demand in difficult times".
Although such ‘difficult times’ are finite, Webster observed non-prime lending would not be threatened by an economic recovery: "Demand has been constrained by circumstances. If the economy turns a corner, people will start spending again. Even if there is a contraction in the pool of subprime customers, you’re still talking about a massive marketplace."
With One Stop only "scratching the surface" of the market, said Webster, "the market wouldn’t shrink enough to dent our ambitions", and any boost to the economy may bring with it a rise in interest rates and subprime demand could expand again.
Unfortunately, "all it takes is a small rise in mortgage rates and people can be back in trouble".
richard.brown@timetric.com
