Consumer car finance market destined for another record year

Posted by Michael Bolt in Personal Finance on 12 December 2014 - Michael worked as a Credit Analyst at checkmyfile until 2015

The UK car finance industry is heading for another record year, according to figures released by the Finance & Leasing Association (FLA). Some 75.9% of all new private car sales were financed in some way in the twelve months to October, demonstrating the industry’s record breaking year in terms of market infiltration.

This represents the third time during 2014 that finance penetration has reached record breaking levels and reflects the popularity of finance products such as ‘PCP’ with consumers.

PCP (Personal Contract Purchase) has been attributed with helping car finance grow at a faster rate than car sales. PCP is a type of car finance similar to Hire Purchase (HP). It works by offering cars for a variable deposit at a monthly fee. At the end of the typical three year period, consumers then either hand the car back, make a ‘balloon payment’ to purchase the car out right or put any equity they have in the car towards a new car model. PCP is seen as an attractive option by consumers due to the lower monthly repayments available compared to HP.

The figures released by the FLA show that over £1.1bn in finance was extended in October, representing a 17% increase on the previous year.

This compares to the 14.2% increase seen in new car purchases in October - based on statistics released by the Society of Motor Manufacturers and Traders.

An increase in the use of car finance has also been seen in the used car market, with a year-on-year rise of 15% seen in October to some £957m in advances. In the 12 months to the end of October, the total value of used car finance was slightly under £10.5bn, a rise of 23% rise on the previous 12 months. There was a 16% increase in the number of used cars purchased on finance in that period.

Geraldine Kilkelly of the FLA says, “The consumer new and used car finance markets have reported new business growth in each month so far in 2014. Both markets are heading for record years, with almost 2.0 million cars likely to be bought by consumers on finance provided through dealerships in 2014 as a whole”.

An increase in the number of cars purchased on finance has also been seen in the commercial sector, with business buyers having financed some 24% more cars than in October 2013.

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