Brokers targeted in bold push to diversify business
In an audacious move to extend its reach in the automotive finance market, Firstmac has launched a variable rate car loan at a super low rate of 3.19%.
The non-bank lender operates primarily in the residential home loan space and this month its loan book surpassed the $15 billion milestone. After introducing car loans several years ago, Firstmac is hoping its variable rate for auto loans offer will resonate with brokers and borrowers.
While common in home loans, few lenders offer variable rate loans for vehicles.
Firstmac chief financial officer James Austin (pictured) said some credit unions offered variable rate unsecured personal car loans up around the 10% mark.
“This is certainly the first that’s at a very competitive rate around that 3% mark, whereas fixed rates are typically, particularly now with the rise in interest rates, at 5% getting closer to 6%,” Austin said.
Firstmac had built up a $500 million auto loan book but Austin said the lender was still a “new kid on the block”.
“We’re not here to do the same as everyone else, we’re going to disrupt and offer loans that have far cheaper rates but also flexibility so you can redraw money, which is quite unheard of on an auto loan,” he said. “There’s no fees.”
Borrowers can make advance repayments and redraw up to $5,000 per day.
Firstmac offers a variable rate of 3.19% (3.73% comp) for green electric or hybrid vehicles, supported by the federal government’s Clean Energy Finance Corporation.
The rate for other new vehicles is 3.29% (3.83% comp), provided the borrower is a homeowner.
Kim Cannon, the managing director of Firstmac, said while some major lenders were exiting the car loan market, “we view the current environment as an opportunity to grow using the same philosophy of innovation that has seen us prosper in the home loan space”.
“Most Australian home loans are variable rate products so we know that borrowers prefer variable, yet until now most lenders have only offered them fixed rate car loans. We are going to change that,” Cannon said.
Cannon said he expected the variable rate product to be very popular because the selling proposition for a variable car loan rate was even stronger than for home loans.
“Car loans are smaller and have much shorter duration than home loans so the impact of any potential rate rise is relatively modest, while the borrower still gets the benefit of a lower starting rate and much more flexibility,” he said. “On a typical five-year car loan, more than 70% of the loan interest has already been paid-off within two-and-a-half years, so brokers can make an excellent case that a variable rate is a conservative option that offers the best of both worlds – flexibility and savings.”
Austin said when it comes to home loans people have the choice of variable or fixed rates.
“The variable rate always wins, the bank always gets the fixed right, and the customer gets it wrong,” he said. “That’s likely to be the case here too where the variable rates are going to be much better over a term up to five years than the fixed rates.”
Firstmac wanted to diversify its home loan business by offering car loans and was targeting consumer-style customers.
“A lot of car buyers can then also have mortgage requirements so we can certainly then look after all their needs rather some of the mono-loan asset lenders only,” Austin noted.
He said while about half of its car loan business came through brokers, Firstmac saw the prospect of far more growth through the broker channel.
“The broker portion has been growing in recent times as our offering becomes known across the broker network,” he explained.
Most were home loan brokers who were also offering car loans to their clients, but Firstmac was also keen to attract asset brokers who specialise in auto finance.
While the non-backed lender’s home loans are supported by residential mortgage-backed securities (RMBS), Austin said Firstmac will be issuing its first asset-backed securities (ABS) for car loans by mid-2022.
“When we do that, it will allow our funding costs to come down further, so we’ll really start to be very competitive in this space.”