The peer-to-peer lending platform will carry out a pilot period during the next three months to test the consumer hire purchase product.
In August, RateSetter launched its business hire purchase product and completed its first agreement a few weeks ago.
“We believe that commercial and consumer HP products will broaden our addressable market and enhance RateSetter’s offering to borrowers, while providing a new channel to deliver steady returns to lenders,” RateSetter stated.
It explained that its consumer hire purchase would be available for people purchasing a vehicle, with the asset being legally held by the platform on behalf of its lenders.
The consumer may then want to return the vehicle and end the agreement or take legal ownership when the final payment is made.
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Consumer hire purchase agreements will be up to £25,000, but RateSetter expects them to be typically around £6,000.
The agreement term will be between 12 and 60 months and RateSetter will allow early repayments without penalties.
APRs will depend on RateSetter’s assessment of each customer’s creditworthiness, starting at 19.9% and with the same maximum APR as its existing consumer finance of 49.9%.
Initially all customers will be originated through intermediaries, but RateSetter intends to allow direct applications in due course.
“This does not materially change the risk of investing with RateSetter,” the platform added.
“We expect the level of defaults will be higher than the current consumer loan book, but the nature of the security for HP agreements means enhanced recoveries which will protect lenders’ position.”
RateSetter added that consumers approved for hire purchase agreements would pay into the provision fund in accordance with its assessment of their creditworthiness at the point of approval and it would take full security over the vehicle.
“If a customer defaults, the provision fund will act in the usual way, by providing a buffer for lenders and then making recoveries using the vehicle as security (vehicles are fitted with tracking technology and an immobiliser to facilitate repossession if the borrower defaults).”