Author: Geoff Walsh
Intelligent Environments has recently launched a mobile app for managing motor finance. Users can log on to the car finance software, check the outstanding balance, pay lump sums, request payment holidays, etc., from the comfort of their mobile phones, and do everything that used to involve a phone call, letter, or even trip to the lender.
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Motor finance was actually the spearhead for consumer finance in general. In 1920s America the motor car was the ultimate status symbol, but almost no one could afford one. The problem was solved in true American free market style – lenders started springing up across the nation, offering loans at competitive rates with spread payments. Although popular with consumers, not everyone liked the idea. A certain Mr L Q White, of the L Q White Banking Company, Boston, wrote to the White House complaining that encouraging consumers to take on extra debt would make them poorer, and therefore less likely to buy other goods. This in turn would harm industry as a whole, as well as saddling the average American with a mountain of debt.
The Federal Reserve investigated Mr White’s claim, and the findings were that a car was already perceived as a necessity by those who owned one: “… companies find it [motor finance] extremely profitable because they have learned that the family will sacrifice other convenience, every other luxury, and often necessities, rather than give up the automobile” (extra from the FR’s response to Mr White).
Incidentally, car insurance started during World War I, and became compulsory in the UK in 1930. Licences became compulsory in 1934, meaning that for many years anyone could drive as long as they felt up to it(!).
The car loan trend spread to other, less expensive goods, such as refrigerators, washing machines, etc., and so ‘buy now pay later’ finance was born.
Irresponsible borrowing led to an international crash in 2008, appropriately known as the ‘credit crunch’, but even that has not stopped the same behaviour from lenders and consumers. In the same way that car loans kick started consumer finance, they are now among the first to have an app devoted to their service. Expect to see more apps devoted solely to servicing loans in the future; I predict white goods will be next.
The only outstanding question I have been unable to find an answer to is – when did ‘finance’ start meaning ‘debt’…?