As the car industry begins to return to something approaching normality, many consumers and businesses are left asking why finance companies are taking so long to approve finance. With volatile car supply and pricing, this can create a ‘black hole’ where the price of the car you thought you had agreed, has changed by the time finance companies have approved your application.
Coupled with higher levels of ‘declines’, this is creating a further supply bottleneck to add to the longstanding and well-known issues with the supply of the vehicles themselves.
There are 3 main reasons we continue to see underwriting taking longer, and with a lower approval rate than normal in the car finance market.
The surge in Electric Vehicles and Salary Sacrifice
The movement to electric vehicles (EV) has rewritten the landscape of underwriting, meaning a far higher percentage of vehicles are currently being financed through a tax-efficient, business finance route than ever before.
Given the finance companies take on inherently more risk with limited companies than they do with individuals, their lending criteria have to be more strict. Coupled with an explosion of incidents of business car finance fraud since we all started working remotely, this has hugely slowed down processes.
What is more, most car finance companies refuse to offer “Directors’ Guarantees”. These guarantees have become common with many forms of Small and Medium Enterprise finance since 2008, meaning personal creditworthiness has very little impact on the underwriting decision, and this often slows the business underwriting down further, as lenders look to understand the business on its own merits, rather than taking into account the Directors' personal credit history.
Pending Recession
Naturally, when agreeing finance on a car, banks and finance companies are looking at a 3-4 year perspective, with very low rates of return on their asset should the finance drop into default. With most macroeconomic indicators showing a recession in the UK during the winter of 2022-23, banks have tightened their lending criteria accordingly, meaning lower levels of “auto-approved” finance, in turn slowing down the process further.
Staffing Issues
As with many organisations, finance companies continue to struggle in the aftermath of the COVID pandemic with recruitment, retention and managing a hybrid workforce. This means very few are meeting their Service Level Agreements (one finance company with a 48 hour SLA is currently running at 10 days for a response).
What can you do?
The more you can provide correctly first time, the easier the process becomes. We’ve compiled a handy guide to underwriting for businesses. Just email us on partnerships@pikeandbambridge.co.uk and we'll ping it to you. Also, having things like driving licences with up to date address data (check they’ve not expired) and recent management accounts for businesses will help you, and your broker, control what can be controlled.
