Opportunities in car financing as travel abates
Research shows that while intention to take out a loan has fallen; the proportion of loans being used to purchase a car continues to increase.
RFi Group data shows that the proportion of Australians who hold a personal or car loan has fallen from 17 per cent to 16 per cent in the last six months.
Intention to take out a personal or car loan in the next 12 months has also fallen more steeply, dropping from 10 per cent in June 2019 to 7 per cent in June 2020.
However, RFi Group data has seen consistent growth in the proportion of loans being taken out for a new or used car since December 2019, while even before COVID-19 the data has been showing a steady decline in loans being taken out to fund a holiday.
In the current pandemic, it is no longer an option for Australians to travel overseas for a holiday. RFi Group research shows that of Australians who have travelled internationally in the last 12 months, 1 in 3 had to cancel an overseas trip and 1 in 4 had to postpone or reschedule a trip.
Travel intentions have declined dramatically, and travellers are now more likely to plan on travelling domestically in the upcoming year rather than internationally.
With this in mind, there may be opportunity for Australians to spend the money they had saved for their holiday on a purchase of a new or used car, particularly given Australians have become more likely to travel domestically.
Domestic travel also poses an opportunity for vehicles such as four-wheel drive or off-road vehicles to be purchased, or existing cars to be upgraded.
In fact, RFi Group data shows that nearly 2 in 5 car loan holders purchased their car as they felt it was the right time to upgrade.
RFi Group research showed that earlier in 2020, visiting car dealerships in person remained a key method of conducting research on potential car brands and models, however this was followed closely by utilisation of online car buying websites, visiting the website of specific car brands or conducting Google searches.
The research also showed that key reasons for a face to face application included the perception that it is easy and convenient to apply this way, or that it would be the fastest way of getting the loan.
However, for customers who applied online, the fact that they did not have to speak to a real person was a key reason for their decision to apply in this way.
What support could car loan holders need?
Australians who hold a personal and car loan are more likely to exhibit high levels of concern for their personal financial situation (1 in 4 indicate high levels of concern) compared to other Australians.
Personal and car loan holders under the age of 25 are more likely than older borrowers to indicate that their income has been impacted by COVID-19, and there has been an increase in borrower expectation that it will be difficult to meet their loan repayments in upcoming months.
It is important to ensure that both new and existing customers understand the loan product they take out and have confidence that the loan offered is suitable for them.
RFi Group research has shown that trust is becoming increasingly important to consumers across the market, and a component of trust is ensuring transparency of fees and pricing – this may be critical in helping to make sure customers understand the product they have taken out and the costs associated with this decision, especially during a time of heightened financial stress.
Anna Shaw is the client insights manager at RFi Group