Lloyds Banking Group director criticises "aggressive" car loan deals as consumer credit stacks up

Alys Key
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Brits are increasingly racking up debt to buy cars (Source: Getty)

Britain's growing car debt is being exacerbated by "aggressive" deals available on the car loans market, the head of Lloyds Banking Group's vehicle finance arm has warned.

Richard Jones, managing director of Black Horse, which provides loans enabling customers to buy cars, motorcycles and caravans, criticised deals offered by rivals on the car loan market which overvalue the product.

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Personal contract purchases (PCPs) offer low monthly payments and end with large "balloon" payments. But it is feared the value of the balloon payment, which is agreed in the loan contract and based on the car's value, is overestimated in some cases.

This means if a customer returns the car rather than making the balloon payment, the lender could make a loss selling the car second-hand for lower than anticipated.

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Speaking to The Telegraph, Jones said his division takes a "prudent approach" to PCPs. Black Horse prices the guaranteed future value (GFV) below the estimated actual value, both in order to give the customer equity and to protect the lender from risk.

His comments come as the Financial Conduct Authority (FCA) investigates the car financing industry.

A boom in PCPs has come under scrutiny as overall levels of British consumer credit growth accelerate, and some City analysts are concerned by the possibility of a crash.

Banks and car manufacturers offering PCPs based on overvalued GFVs stand to lose money.

The Bank of England has estimated that big British lenders could be facing exposure of as much as £20bn to motor finance risks.

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