From Real Cycles Blog www.realcycles.co.ukAn End To Bike Shop Finance?
If you’ve been into any bike shop in the last few years, or even visited their websites, you’ll have most likely seen the image above hanging somewhere. It’s there to tell you that in the shop you can buy your new bike and/or bits on finance.
When you avail’d of this service the shop didn’t lend you the money, they acted as the broker between you and the lender, Black Horse Finance. These guys are part of the Lloyds group and deal with the finance in over 90% of bike shops, and many many other types of shops on the high street too. Reality is if you’ve ever purchased anything on interest free or low rate finance from a shop, your a customer of Black Horse. From the end of next month, 26th Feb to be precise, Black Horse are pulling out. This means no more low rate or interest free finance in almost all bike shops.
The implications of this move are massive. As I said, Black Horse has massive market share, there are others obviously, much smaller with less competitive rates, but they do exists. But think about it, once Black Horse are gone, these other players are not going to put they’re rates down are they? Nope. The cost of this finance is going one way, up.
And when I talk of rates, I mean the costs of the finance to the shops. If you buy something on interest free you pay only the ticket price, this doesn’t mean the bank lending the money do it for free, no, of course not. They charge the shop a commission. In the instance of 24 months interest free it can be as much as 20% of the purchase price. Low rate finance, where the lender charges you the customer a low rate of interest also costs the shop. Yep, the lender still wants to make his 20% commission, so you pay a bit and the retailer pays the rest.
So, what does this mean to you? Well, put bluntly, your going to have to find the cash, or space on a credit card for your next big purchase. And not just bikes. This is going to have massive ramifications on the high street for everyone. Interest free finance is more or less going to disappear over night, and low rate I suspect won’t be as low rate as it is now. And don’t expect the banks to step in with interest free credit cards either. The cost of borrowing on cards is getting higher and higher every month. So, in short, if you ain’t got the cash, it’s gonna cost to borrow the money. A lot.
How will this effect the shops? It don’t take a genius to work out this is going to squeeze a lot of shops very hard. Until we stopped offering interest free finance back in the Summer (we had word this was coming so started preparing early for it) almost all our top end bikes were sold using this method. Once we switched from interest free to low rate our top end sales slipped, but we and or customers got used to it, so it’ll have little effect on us now. But lots of shops rely still on interest free finance to sell big ticket items even though the costs to them are so high (20% average), so the question “How will they survive come March?” has to be asked.
How will this effect us? Thankfully, not much, if at all. We more or less stopped interest free in the Summer when the rates went thru the roof, we moved over to low rate finance instead. Presently you can buy anything over £150 from us at 9.9% APR, which on a £2000 will cost you £100pa in interest, so it’s not really that expensive. Best of all you can spread the cost over 36 months, something you could never do with interest free (max was normally 24). Until 26th Feb we’re still doing this business with Black Horse, but once they turn the tap off we’ll have another lender in place and whilst the interest rate might go up a bit, it won’t be by much, we hope!
As a fail safe though, if your thinking of a big ticket purchase soon, we suggest getting in now. Other lenders are waiting in the wings to take over the Black Horse business, but as yet we’ve no idea on the rates, and more over the acceptance levels. That is, how many applications actually get approved. Experience has taught us that few offer levels like Black Horse did (average 85%), most hover around the 50% mark. So, as I say, get in now, or you might end up having to save up for that next big new bit of bling.
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