When I first started leasing cars, we
mainly provided lease purchase and finance lease. Then, in the mid
1980s, contract hire started to take off, and we provided rates
based on 3+33 payments for three years or 3+21 payments for two
years. This meant the last two months of the agreement were
‘holiday’ months and sensible clients would put the payments saved
into a piggy bank to then be used against the three months’ initial
rental on the next deal.
All was going swimmingly well until a funder
tweaked his computer to enable his brokers to quote on 3+35 for
three years and 3+23 for two years, which in turn reduced the
monthly rentals from those being quoted previously. As a result,
all brokers turned into crooks overnight in the eyes of their
customers. We were now trying to screw them out of these extra two
payments – and, of course, some brokers were!
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These brokers conveniently forgot to mention the
extra payments after saving the customer five quid a month on his
monthly rental compared to the competitors, who were of course
quoting with a terminal pause of two months.The good brokers lost
loads of business as a result because they hadn’t allowed for the
fact customers are generally pretty dopey when it comes to
contracts and reading them.
Hardly a week goes by, even now, without me having
to explain why you pay 38 monthly payments over 36 months, but is
it all about to kick off again?
Echoes of the past
Just as things were reasonably settled
and I had my explanation off pat, we suddenly see the 6+ profiles
cropping up. Why have we moved to 6+23 and 6+35; is it all a con,
as were the old spread rentals, or is it a genuine attempt to ease
risk taken by funders? I can see the reasoning behind asking for
six months’ rentals as a deposit upfront in order to reduce the
risk, but if a client has a low credit score, would the funder
happily ignore that for a little more money upfront? Somehow I
don’t think so.
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By GlobalDataA big selling point for contract hire has always
been the low initial payment, but in some cases customers must pay
close to 20 percent of the cost of the car as an initial rental –
thus removing this major benefit.
But would all this be lost on a customer who simply
searches the internet for the lowest monthly rate irrespective of
the initial rental? Probably. So why should I be concerned? Surely
I should just jump on the bandwagon and start quoting six months
upfront? No – the ‘problem’ is that, like many other brokers, I
care about my customers.
If a client could have his application for finance
approved if he increases the amount he pays upfront, or shortens
the length of his lease, then this should be advised by the funder
– there is too much guesswork involved at present. There should
also be some advertising standards introduced to take away any
chance of clients being misled. APR was introduced to make
comparing interest rates easier for consumers – we should be doing
something similar for contract hire, or we will be marked again as
conning our clients, as more consumers make the move to contract
hire.
