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08 May 2014

Credit Amnesty Did Not Improve Access To Credit

Banking, Credit Report No Comments

Consumers hoping a recent credit amnesty would open the door for them to buy new cars received a reality check last month, with new vehicle sales falling by 16% month on month.

Banks continued to hold the line against credit risk despite reporting a surge in finance applications after an amendment to the National Credit Act allowed some consumers to re-enter the market following the removal of defaults and previous bad-debt judgments against them.

WesBank research head Brian Mahoney reported a 6.7% increase in new-car finance applications last month, compared to April last year. Most credit-amnesty hopefuls, however, chanced their arm in the used-car market, where Mr Mahoney said applications rose 16.4%.

Nicholas Nkosi, of Standard Bank’s vehicle and asset finance division, said the bank experienced an overall 23% rise in vehicle finance applications for new and used vehicles.

Despite the surge in applications, April’s new-car sales were down more than 16% on the previous month and nearly 11% on the same month last year. Year on year, new-car sales in the first four months of this year were down 6.3%, from 149,453 to 140,075.

“As anticipated, banks have adjusted their credit underwriting to account for the effect of the credit amnesty” said Advocate Kate Thambiran, Managing Director of LUCID Clear Credit, a credit rehabilitation firm. Adv Thambiran elaborated, “with the removal of adverse listings and paid-up judgments, banks are placing more importance on the repayment history of an applicant (an aspect on the credit report not affected by the credit amnesty). If an applicant’s repayment history, shows arrears or missed payments, the likelihood of getting finance is low.”

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