Car finance debt continues to grow despite falling sales

We are running out of different ways to report the same findings every month

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Car finance debt increased in the third quarter of 2018, despite the number of new finance agreements falling in line with lower new car sales in September.

Latest car finance borrowing data published this week by the Finance and Leasing Association (FLA) shows that just under £4.9 billion was lent to new car buyers in Q3, a mere 0.4% less than the same period in 2017 despite the big new car sales month of September being 14% down on the same month last year.

2017 was a record year for both new and used car borrowing despite falling new car sales, and year-to-date data for 2018 suggests this trend will continue. New car debt stands at £15.3 billion for the first nine months of 2018, which is 5% ahead of the same point last year despite private new car sales being 7% down.

The FLA reports that 91% of private new cars are financed at the dealership, the vast majority of which are PCP agreements. The increased borrowing suggests that car buyers are either paying more per month or (more likely) taking longer PCP contracts, which also helps to explain why new car sales are decreasing yet borrowing is increasing.

Sales vs finance, Q3 2018

Used car sales data for Q3 is expected to be released next week, but was 2% down in the first half of the year. Despite this, the number of finance agreements was up nearly 12% and the total debt was up more than 17%.

Average borrowing is up approximately 6% for both new and used cars year-to-date. By contrast, real average weekly earnings have only increased 0.4% according to the Office for National Statistics.

No Brexit anxiety for car finance borrowers – or lenders

Despite the continuous media coverage of Brexit and the almost daily complaints from across the car industry that the country’s uncertain position in the world is hurting business, it doesn’t look like car buyers are too worried about taking out more and more debt to drive a shiny new (or nearly-new) car.

These latest results are entirely consistent with what we have been reporting for the last 18 months since The Car Expert started publishing our analysis of sales vs finance figures. In fact, I have reduced our coverage from monthly to quarterly updates as there are only so many times you can keep saying “sales are down but debt keeps going up”.

If we fall off a post-Brexit cliff and land somewhere back in the Dark Ages, as various prognosticators keep predicting, presumably all these borrowers will soon be out of jobs and be unable to service their ever-growing debts as the economy collapses around our ears.

With less than six months to go until B-Day, the finance companies (usually owned by the car manufacturers themselves) seem happy to keep on lending more and more money to every customer. There appears to be no indication that they are applying the brakes on the car finance express.

So either they’re not all that worried about the post-Brexit world, or they’re simply accelerating towards the apocalypse…

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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.

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