Car finance debt breaking new records in 2018

- Advertisement -

Car finance debt from dealerships for 2018 to date has smashed previous records, as new and used car buyers continue to borrow more and more money on their cars.

Point of sale (POS) consumer car finance lending for new cars topped £10 billion for the first six months of 2018, according to data released today by the Finance and Leasing Association (FLA), while lending for used cars was more than £9 billion. This is an increase of 8% and 17% respectively over last year’s record numbers, despite fewer cars being sold.

The average borrowing for both new and used cars hit record levels in the last quarter, with average new car borrowing at about £20,000 (up 7% over last year) and used car borrowing at about £12,000 (up 5% over last year). Over the same period, average weekly earnings across the UK have only increased by 2%, suggesting that buyers are spending more of their income on car finance payments than ever before.

For new car buyers, average car finance debt now represents more than 39 weeks of average earnings, up from 29 weeks at the start of the decade. Much of this growth has been fuelled by the popularity of personal contract purchase (PCP) finance, meaning greater debt but lower monthly payments thanks to the enormous balloon payment that hangs over the length of the agreement. The problem is that if a customer needs to settle the finance agreement early, they have an enormous debt that they generally can’t afford to clear.

Used car finance growth is also being driven by the increasing popularity of PCP agreements, although the interest rates are not usually as favourable on used cars as they are for new cars.

About 90% of all privately-purchased new cars are financed at point of sale, with car dealerships acting as brokers for the finance companies. For used cars, the figure is harder to judge but probably less than 20% as many used cars are sold privately or financed by other means (such as a personal loan from a bank).

Cars bought on finance by consumers through dealerships – June 2018
New businessJun 2018% change on prev. year3 months to Jun 2018% change on prev. year12 months to Jun 2018% change on prev. year
New cars
Value of advances (£m)1,717+9%4,962+18%19,479+4%
Number of cars83,470+1%243,495+12%978,713-6%
Used cars
Value of advances (£m)1,460+11%4,562+16%16,528+13%
Number of cars119,903+4%383,302+10%1,412,991+7%
Total cars
Value of advances (£m)3,176+10%9,524+17%36,007+8%
Number of cars203,373+3%626,797+11%2,391,704+2%

Source: Finance and Leasing Association

Increased interest rates have had no impact on car finance debt

Based on this record car finance lending for the first half of 2018, it appears that the Bank of England’s move to increase interest rates last November has done absolutely nothing to slow borrowing on new and used cars. Another increase has been announced this month, so it remains to be seen whether or not this will make any difference to car finance borrowing over the rest of this year.

There are still plenty of low-rate or even 0% APR new car deals around in the marketplace, and the ongoing desperation of car manufacturers and dealers to sell every car they can means that we are unlikely to see any substantial hikes in the rates offered to customers.

If rates do start creeping up, we can expect to see dealers steering customers towards ever-longer terms to keep their monthly payments down. Whilst that may help them get a sale today, it’s just postponing an inevitable problem of declining sales further down the line.

You may also like:

Data sources:
- Advertisement -
Stuart Masson
Stuart Masson
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

Latest Expert Advice

How to understand a PCP car finance quote

Thousands of people look at a PCP car finance quote and are hopelessly confused by all the different numbers. Cut through the confusion with this guide.

What to expect as car dealerships in England reopen

Car dealerships in England have been allowed to open from today, but what safety processes should you expect to see in place?

Latest Expert Ratings

Ford Kuga

The third-generation Ford Kuga has received positive reviews, being considered good to drive although not as spacious as most rivals.

Mercedes-Benz E-Class

The Mercedes-Benz E-Class has received consistently positive media reviews, with high praise for its comfort, refinement and spaciousness.

BMW unveils eye-catching new 4 Series Coupé

BMW has revealed its latest-generation 4 Series Coupé, debuting a dramatic new design ahead of its market launch in October.

Citroën releases UK pricing for updated C3

Citroën announces pricing and specifications for its refreshed C3, which brings a sharper exterior look alongside efficient new engines.

Britain’s best-selling cars, May 2020

Click-and-collect sales meant that more customers took delivery of new cars than last month. Here are the top ten sellers for May.

May new car sales show first painful signs of recovery

It was another month of agonisingly low new car sales in May, with just over 20,000 new vehicles registered as showrooms remained closed.

More from The Car Expert

Expert Advice

Award-winning, independent and impartial advice on buying, financing, owning and running a car

Expert Ratings

We analyse and aggregate dozens of media reviews for each new car into an overall Expert Rating

Expert News

All the most important new car launches, model updates, car reviews and industry news

Expert Partners

Our new space for commercial partners to bring you special offers on their products and services

What are your thoughts? Let us know below.