"There is a lot of misunderstanding on how expensive it is to provide retail finance"

I think there is a lot of misunderstanding on how expensive it is to provide retail finance because banks and mortgages are able to write loans at such low rates. Most of the headline banks only offer those rates on full automated online loans that have little to no cost to super prime customers using funds provided by all the countless risk averse customers leaving money on deposit in zero interest accounts.

For dedicated FH they have to go to either PE or IB's to get their funds from the wholesale debt markets where they compete against yields from other securities for investor cash. The minimum rate would be at least higher than sovereign debt and corporate debt due to the extra risk exposure of the consumer market. So you are talking more like minimum 4 to 5 percent wholesale dost by the time the IB packaged it - and in rate pecking order the prime HNW books of Ferraris, Bentleys et all will be at the top.

Then the FH has to cover all their back office costs, admin, make good defaults etc and chase around idiots who can't manage their DD's. On a 12.5k deal at 10 percent out of 1800 interest they'll make a small profit and hope to upsell them a more profitable deal - its 1/10 of the cost to underwrite a 100k deal than 10x 10k deals so on smaller amounts the interest has to cover a proportionately bigger admin cost than a larger loan needs to.

In terms of rate for risk - the more expensive car is likely to hurt more if the deal goes south than if 3/10 of the 10k deals default, so alot of the pricing is dependent on the depreciation curve of the car, deposit and how likely the borrower is to outright steal the thing.

The car finance market is actually incredibly competetive behind the scenes - the dealer FH have to charge more because banks and mfr's FH's cream off all the low risk super prime deals leaving them with a lower quality book that dists more to wholesale fund.

The fact is that the reason the dealer rates are high is because nobody else would usually lend money to those people and they incur extra costs of dealing with idiots. A quick read of the CAF will reveal the alarming amount of people who finance cars then get into trouble within months then try every trick in the book to try and avoid paying what they owe. The FH have to price all those losses in somewhere.

Banks offer cheap money because customers give them cheap money, investments offer goid returns because consumers pay too much and don't arbitrage. If everyone took the PH'r approach and demanded to borrow at 0.5-2.5 percent while expecting 15 percent returns on their own savings the financial system would collapse. The interest rate differential is merely a arbitrage trade redistributing wealth from the uninformec to the astute - a model which the entire City of London depends on for its existance.

FH could probably lend money out cheaper, Tescos could probably sell eggs cheaper - but in a capitalist market exonomy you price what the market will bear and if you can place deals at 10 percent why would you place them at 7? 

If dealers couldn't write business at those interest rates they'd have no business, and if you don't like the rate them seemples - pay cash.

Back in 2006-2008 ish, one sub prime car finance house was obligated to give 25%+ returns to its investors, and that was assisted by the selling of the various insurance products that have probably been clamped down upon. Also significant costs involved in making sure the car dealer uses your services rather than competitors. And to maintain credibility, your Chairman/CEO,CFO/Risk officer etc needed to be from a high profile background, and to attract these people to your little outfit will again require large compensation packages.

I was told that with defaulters, finding the car could be a problem sometimes, they had deals with companies who specilaised in tracking them down all the way to European Countries..

 https://www.pistonheads.com/gassing/topic.asp?h=0&f=23&t=1662342&i=999999