The revival of subprime lending has gathered pace after Provident Financial bought a car finance group that provides loans to customers who would be shunned from traditional lenders.

It follows a period of rapid growth for Provident, a doorstep lender that has benefited from rising profitability by offering loans and credit cards to riskier and credit-impaired borrowers.

Provident said it had bought Moneybarn, the subprime car finance company, for £120m. It is its first acquisition since the financial crisis.

The deal will trigger a windfall of about £850,000 for James Crosby, the former head of HBOS, who has chaired Moneybarn since 2011. Mr Crosby, who gave up his knighthood last year following a parliamentary report into HBOS’s downfall, will stand down from the role as a result of the acquisition.

Moneybarn – the trading brand of Duncton Group – was founded by David Hoare, the City troubleshooter who was recently appointed as chairman of Ofsted, the government schools inspection agency. It is now the UK’s largest “non-standard” vehicle finance group.

Mr Hoare is the largest shareholder, according to the company’s latest set of accounts, and is also set to receive a substantial windfall.

Peter Crook, Provident’s chief executive, said the acquisition “provides an exciting opportunity to create a third leg of earnings that complements the organic growth opportunities available to the group”.

The purchase comes at a time when car sales are booming in the UK – but finance for substandard borrowers remains tight.

Mr Crook said Moneybarn could offer lower interest rates as its loans were secured on the vehicle. He estimated that there were about 500,000 used car sales to non-standard borrowers in the UK each year, of which he said only about 10 per cent were currently financed by secured loans.

Moneybarn typically finances loans on vehicles that are used for “necessities such as travelling to work rather than for luxury or discretionary purposes”, said Provident in a statement.

The group’s pre-tax profit rose 25 per cent in the first six months of the year, driven by particularly strong demand for credit cards from substandard borrowers. It expected the acquisition to immediately boost earnings.

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