The booming popularity of car finance
As more consumer credit has become available, car finance has long since become THE default option for for car buyers looking for new and used cars.
Indeed, the last full set of available statistics (relating to 2019) showed that over 2.5 million cars were purchased through car finance – representing a staggering increase of around 25% in just five years. These results suggest that around 80% of new car registrations are now a result of car finance deals - a statistic that would have been unthinkable just 25 years ago!
Why is it so popular?
Obviously, having the ability to spread the cost of a car holds huge appeal and has many benefits...whether you’re a young first-time buyer on a budget,or an experienced, older driver with more disposable income.
In these days of ‘everything now', buyers are attracted to speedier transactions rather than engaging in a long, drawn-out saving plan. Then there is the added bonus of being able to keep savings intact for other purposes such as a deposit on a house, home renovations or high-yield investments.
What’s fuelled the recent boom?
Unquestionably, the more recent booming numbers connected to car finance can be explained by the proliferation of more flexible car finance options…most notably the growth of Personal Contract Purchase (PCP loans).
The UK car finance industry has been revolutionised by the introduction of PCP loans, which have introduced a new way for car buyers with challenging financial circumstances to acquire finance. These days, it accounts for the majority of car finance deals due to its flexibility.
Not only that, the PCP loan has helped the industry tap into the 'mobile-phone contract culture’ where a monthly payment figure is prioritised over a desire to acquire outright ownership.
With the introduction of PCP loans, car finance has become much more flexible; monthly payments are lower than the payments for the same car through a traditional Hire Purchase agreement (where eventual ownership of the car is the aim). This shift has meant that customers previously priced out of affording a new car have suddenly being brought into the market.
A PCP loan also gives buyers the opportunity to buy a new car with no deposit. A no deposit car finance deal means that the process of applying for car finance is further expedited – there’s no long period of saving up for a large, cash deposit before you can get accepted for a loan. As a result, it’s far a fantastic car finance option for those in complex financial circumstances – such as the self-employed – or those with poor credit ratings.
What does the future hold for car finance?
Despite fears over the economy post-covid - and a possible drop in new and used car sales in general - car finance is sure to remain as the top choice for car purchasers, particularly as significant sections of the public have been forced to 'burn through' savings during the pandemic.
Splitting the cost of a car over low and affordable payments is far more appealing than the stress of a large cash payment, particularly with rates at an all-time low and a lingering sense of unease around what the medium-term future holds. Indeed, the buffer of having some liquid savings has never felt so important.
With increasing options available for zero deposit car finance, better cars, and increased flexibility at the end of each contract, it’s little wonder that car finance is increasing in popularity year on year.
And, with interest rates at an all-time low, and with transparency and regulation at an all-time it’s hard to envisage anything other than further growth.