Is car finance bubble about to burst?

FEARS over the perilous state of the car finance market were mounting last night as it emerged Britain’s leading sub-prime lender was closing.

Bosses at The Car Finance Company, which specialises in lending to those with poor credit history, told staff last week that the business would shut down within two years.

In a letter seen by the Daily Mail, the firm said lending had ‘ceased with immediate effect’ in March when funders withdrew.

The decision comes just weeks after accounts revealed American investors wrote off £50million in the business when it emerged the number of customers falling behind on payments had more than doubled in a year.

The Car Finance Company, based in Portsmouth, is one of Britain’s largest sub-prime lenders, with about 40,000 customers.

It offers finance to drivers with County Court Judgments and those who have been declared bankrupt or refused credit elsewhere.

Under the firm’s interest rates of as much as 49.6 per cent, customers taking out a £10,000 car loan over four years would be required to pay back £20,010, once charges are added.

The firm recorded sales growth in 2015 of 119 per cent in just three years. That year, investors Pine Brook spent £50million on the business and profits were recorded as £400,000.

But last year impairments – the amount of debt people are struggling to pay back – rose by 371 per cent to £11.6million. Those in arrears – when a driver falls behind on repayments – grew from 8.2 to 18.4 per cent. The firm subsequently lost £17.8million. In March, banks and share-

‘Customers are not paying us back’

holders began withdrawing funds amid growing concern at the state of the car loan market.

One employee said: ‘We currently have huge debts and our customers are not paying us back. A lot of staff are very angry with the company due to them telling us back in April that all of our jobs were safe. Now we know that’s not true.’

The letter stated that a new, separate company was to be created, which will be run by the same management and use some of the same funders as The Car Finance Company.

Consumer credit debt has topped £200billion for the first time since 2008, the year of the global financial crisis.

A TCFC spokesman said it would maintain its arrangements with existing customers until 2020, when the last of their loans expire.

The spokesman said: ‘Our previous funders have provided assurances that they will provide the necessary funding to the company to ensure that our staff can continue to deliver the highest standard of service to customers over the remaining life of their agreements. The new regulated company is an entirely separate legal entity to TCFC.’

Sales of new diesel cars have fallen by a fifth amid growing fears of a crackdown on drivers.

The Society of Motor Manufacturers and Traders blamed the Government for uncertainty over its clean air plans yesterday.

Sales of new diesels have fallen 20.1 per cent over the last year, from 86,594 in July last year, to 69,157 last month. Meanwhile sales of hybrid and electric cars rose by 64.9 per cent to 8,871.

Last week the Government revealed plans to ban sales of new diesel and petrol cars by 2040.