Fleet News

Long-term finance a thing of the past?

LONG-term car finance may become a thing of the past because of a crisis in the industry caused by the residual value downturn. Trade newsletter Sewells Used Car Dealer, a sister publication of Fleet NewsNet, has identified the massive increase in car buyers bailing out half-way through long-term finance deals because their cars never move out of negative equity.

Due to the fall in values, many buyers have found themselves unable to trade-in their cars because they are worth less than the finance still owing. As a result, they are opting to hand back the car to the finance company and walk away - legally owing nothing further and leaving the finance house facing losses of thousands of pounds. Used car dealer editor Mike Hind said: 'The immediate cause of the problem is the accelerated depreciation we have seen over the last 18 months which has left cars in negative equity well before they are paid for.

'But the fundamental problem lies in long-term finance itself, because it runs against the normal change cycle. There is now a strong argument that dealers should consider selling shorter-term finance, even if that means dealing the customer down into a cheaper car, in order to avoid the wider market instability which a finance industry crisis would undoubtedly create.'

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