The finance sector for cars is in the most revolutionary phase to date. In the last decade it has totally changed the way we purchase vehicles and the amount we can afford. In the long line of new and innovative products such as pay As You Go Finance for cars is just the most recent. Can it live up to the praise it received from the beginning? that was attributed to it?
The lessons learned from insurance
Pay as you go could be a brand new concept. However, it’s not strictly being considered a new innovation. Insurance firms have used it for some time and have seen great results. However, recently it has also become increasingly popular as a finance tool.
Payment As You Go Car relies on a tiny black box that is inserted into the car’s front. This box is capable tracking where and how you drive. The concept was to allow insurance companies to track the driving habits of their customers and ensure they were adhering to the guidelines set out in their contracts. Drivers who were young and inexperienced for instance, might not be allowed to drive in the dark and the black box could verify their compliance.
With a slight change, the exact device can be made to be used in the finance industry, too.
How does black box car finance function?
The black box redesign to facilitate Pay As You Go Car finance, is similar to one used by insurance firms. It operates a bit differently however.
Instead of monitoring your driving habits the system simply regulates your monthly payment plan. At the end of each month, you pay the loan amount. Then, in return you get an electronic code. In the box in black, you will be granted the right to drive the vehicle for another month.
If you are unable to pay the amount and you don’t pay, you will not receive an additional activation code. This means that this black-box will alert you, and then deactivate your vehicle. You won’t then be able to drive until you make the payment and obtain a new number.
Who are they intended for?
The Pay As You Go Car finance was developed for people with a low credit score. Often, those who had poor credit had a hard time obtaining any type of loan for their cars. Dealers and banks considered the chance of a default as too high.
With the help of the black box which is available, you are now able to take out a loan for a car even when your credit score is extremely low. The device makes the vehicle ineffective unless you pay the loan on time. Therefore, there’s a compelling incentive to continue paying. This results in lenders more likely to approve an application.
Based on one company that pioneered the technology that developed it, compliance rates have increased by 500%!!
PAYGC finance is typically used when used in conjunction with a standard Hire Purchase auto loan. It means the financing provider retains ownership of the vehicle until you’ve made the final payment. At this point, the car becomes yours, as well as the box black taken away.
What are the arguments on behalf of Pay As You Go Car?
Since the black box first began appearing in cars across the UK the UK, it has been criticized and mocked.
Since the device is fitted with an GPS device, the privacy concerns were a major concern. However, these are not relevant to the financial aspects of the device. There is no need for lenders to know in the vehicle you’re driving. It’s only of importance the insurance company (if they even care).
It’s even more alarming that you may be stuck out in the desert when your vehicle shuts down because of a missed payment.
What is the likelihood of this happening?
Not particularly. The finance companies have been aware of the issue, but of course. They are not gaining anything from the vehicle getting parked in a shady area or out outside and being damaged or stolen.
Thus each black box will certainly inform you ahead of time that a new installment is coming due. This will eliminate the possibility of not making the payment. Also, there’s always a grace periodthat lets you at a minimum take the car back to your home and ensure that it is secured.
Sometimes the grace period could be just for a couple of days. In other cases, it could last up to a whole month. Whatever the case, you’ll be able to correct the issue. When you pay the amount then you will be able to continue to drive the vehicle.
Yet, isn’t this perhaps a little too harsh?
You can, of course think it’s unfair to prevent your vehicle from this route. However, finance companies will be able to take action when you aren’t able to meet the loan due. Pay As You Go Car seems a far less threatening than sending a collection agency around to meet.
Some have suggested that the black box is a good way of organizing your financial situation. The online platform for finance writes Disease Called Debt:
“When the budget is tight it’s logical to first pay your bills of priority like mortgages or rent, as well as other utilities (after all, you could have your power cut off fairly quickly if you not pay). The technology of the payment box can effectively push cars finance charges higher on the priority list of what bills have prioritised payment. it’s a positive idea (…) in the sense that there isn’t a need to be made in between the car electric or finance for instance.”
This is a good one. If you truly need the car, you must be able to pay the required payments to afford it. Car finance in black boxes serves as a reminder.
However the black box that is installed inside your car can provide several obvious advantages. It already stated that it lets you receive car financing even with poor credit. In addition you can enjoy the following benefits:
It’s among the most simple finance options available to your available. Pay and then use the code to continue driving. If you aren’t able to make the payment, have to wait until you are able.
Contract negotiations are much simpler as well. Black box car financing doesn’t require complicated credit checks because it actively encourages and promotes conformity. The likelihood of default is significantly lower.
In the long term in the long run, car finance that is black box could lead to more fair finance agreements. If compliance does indeed rise to the extent that it is claimed the likelihood of defaulting is reduced down substantially. As a result interest rates will drop also and this makes this an win-win for both parties.
In one of its most ingenuous periods the industry of car finance could have found gold by using black box car finance. It will be fascinating to see if the new technology will lead to a new revolution or if it is an untapped niche.
