According to latest figures by the Finance and Leasing Association (FLA), cars bought on dealer finance grew by 25 per cent in January compared to the same period last year. In addition consumer’s new and used car finance volumes grew by similar rates – up 24 per cent and 25 per cent. The strong performance meant that penetration of finance into new car sales in the twelve months to January rose to 74.5% which is equal to the previous peak that was reported in August 2013.
However, figures haven’t always been so positive for the car finance industry and it was a particularly tough market throughout the recession. Simon Gray, founder and director of Credo Asset finance, who offer car finance in Norwich, expressed: “Asset finance has certainly been a difficult market to be in during the recession, as funding has become increasingly hard to secure with funders disappearing and a shrinking market has seen a reduction in investment in vehicles and plant”. However, as the economy has grown, Mr Gray stated they have already seen “significant growth” revealing that the company has secured £1m of funding which is projected to increase its own lending from £600,000, to more than £2m by the end of 2014.
As the UK’s economy continues to grow with latest predictions stating that the UK economy will exceed its pre-recession peak this summer, the car finance market is looking much more optimistic for the year ahead. Geraldine Kilkelly, head of research and chief economist at the FLA, states that the ‘figures reflect the latest FLA Motor Finance Confidence Survey for Q1 2014 that found motor finance providers remain optimistic about growth in 2014’. It is expected that retail motor finance for new and used cars will grow a further 10 per cent over the next 12 months.
The improved economy combined with unemployment rates dropping by 7.1 per cent, has also meant that consumers have more disposable income and are more confident about investing in things such as car finance. So why is car finance a good option for consumers? Below are just a few reasons why so many consumers chose car finance.
To keep getting a new car
Consumers have the opportunity to get a brand new car on finance and once the contract is up, are able to swap it for a different brand new car. This means that consumers can continually have a new car every few years without investing in one new specific model, where the car value depreciates very quickly. Alternatively consumers can pay off the remaining lump sum so that the car is theirs.
New cars also have the added bonus that they will need a lot less maintenance, are more reliable and also a lot better for our environment.
For the perks that come with the car
A lot of car finance deals often come with additional perks, whether this may be a free fuel for a month or a year’s free car servicing. Although perks like these shouldn’t be the reason why people choose to get a car on finance, they are something consumers should consider when considering getting a car on finance.
Car finance can be good for your credit score
Consumers can often get a car on finance even if they have poor credit. However for those consumers that are just starting out with credit, having a successful car finance agreement on their credit record can be a very good thing and can help to get a good credit history.
Affordability and better budgeting
Rather than having to pay a big lump sum for a brand new car, consumers can pay for the car in affordable monthly repayments. This makes it much easier for consumers to budget for any future expenses. Furthermore, an agreement like this is particularly great for consumers that don’t have the savings to invest in a car, but require the use of a car immediately.
If consumers find themselves in a situation where they no longer need a car, they are able to give the car back (depending on the type of contract the consumer agrees to). Getting a car on finance generally means that consumers are not tied in for a large period of time.
Most car finance agreements in the UK are regulated by the Financial Conduct Authority, and anyone involved in the selling of car finance must be accredited by the FCA. You should always consider the terms and conditions of any agreement carefully before taking out any form of car finance, as you are making a substantial ongoing commitment and there may be significant costs if you change your mind or are unable to meet your commitments at a later date.