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Press release

Investigation reveals scale of UK car finance debt as cost of living crisis intensifies

The scale of the UK’s car finance debt burden has been revealed after an investigation by The Car Expert found that new and used car borrowing has risen by 253% since 2009

More releases from The Car Expert

12 October 2022

  • Total car finance debt has rocketed from £11 billion to nearly £40 billion* since 2009, an increase of 253%
  • The sheer scale of car finance debt a “growing concern” for motorists as the cost of living crisis escalates, says Stuart Masson at The Car Expert
  • The average amount financed for each new car has risen sharply from less than £12,000 in 2009 to more than £25,000 this year
  • Increasing popularity of personal contract purchase (PCP) car finance over the last decade means borrowing has ballooned
  • New car finance debt totals £17.5 billion in the last 12 months while used car finance adds a further £22.2 billion**

The scale of the UK’s car finance debt burden has been revealed after an investigation by The Car Expert found that new and used car borrowing has risen by 253% since 2009.

With the UK now facing a serious and potentially long-lasting cost of living crisis, debt on new and used cars now is near £40 billion a year, up by nearly £29 billion since 2009.

The average amount financed per new car has more than doubled, drastically increasing from just under £12,000 at the start of 2009 to over £25,000 by the end of June 2022. Similarly, the average amount financed per used car has also significantly risen, escalating from slightly under £9,000 to over £15,500 in the same time period.

The analysis conducted by The Car Expert, the UK’s most comprehensive automotive consumer advice site for impartial guidance on car buying, has put a spotlight on the issue as the mounting cost of living crisis adds pressure on household budgets.

Stuart Masson, Editorial Director at The Car Expert, said: “Over the last decade, average wages have not kept pace with the growing level of debt. Whereas wages have increased by 33%*** since 2009, the debt borrowed on new cars has more than doubled, while average used car finance debt has significantly increased by 87% over the same period.

“If the UK continues to experience spiralling inflation, we may have to brace for a significant proportion of borrowers defaulting on their debts, leading to their vehicles being repossessed and possible bankruptcy.”

He continued: “Compounding the problem, electric cars are even more expensive than petrol or diesel cars, meaning even greater debt burdens for consumers trying to go green. And as energy costs drive ever upwards, the promise of lower running costs to offset that increased borrowing is not forthcoming.”

The increasing popularity of personal contract purchase (PCP) car finance over the last decade is partly responsible for the inflated debt burden. These deals can be mistaken for a leasing or rental agreement, when in fact they are purchase agreements; consumers borrow the total value of the car minus the initial deposit. In order to keep the car, a final “balloon payment” (the projected future value of the vehicle) must be paid at the end of the loan. This is typically a significant sum of money that many do not thoroughly consider when signing the agreement. Often consumers find that at the end of the loan their financial situation has changed and they are unable to pay the final amount owed.

“The industry needs be more transparent about what these PCP deals entail. Manufacturers, dealers and the media should be clear that these are purchase agreements and that the balloon payment is part of the total amount borrowed” said Stuart Masson.

“The car industry is utterly reliant on people buying cars they don’t need with money they don’t have. The problem, of course, is that if people no longer have the means to borrow, the car industry will collapse. It was a genuine concern during the Covid shutdowns and remains a risk today as costs of living spiral.”

While borrowing on new cars has swelled to £17.5 billion in the last 12 months, the used car market represents an even larger proportion of the UK vehicle finance debt burden, adding a further £22.2 billion of new borrowing in the last 12 months. Although used car prices are currently strong, the future value of older vehicles is harder to predict, meaning that consumers need to be careful about committing to finance agreements that do not guarantee the future value of the vehicle.

“Our analysis of the Finance & Leasing Association’s (FLA) figures shows a truly worrying level of debt as the nation faces a lot of uncertainty. Political upheaval and the cost of living crisis has brought the UK’s reliance on car finance into sharp focus. We are potentially looking at thousands of households finding themselves in serious trouble in the coming months,” said Stuart Masson.

For further analysis of the UK’s car finance position and for data tables, please get in touch.

The Car Expert provides independent and impartial advice on every aspect of buying, financing, owning, and selling new or used vehicles. For more information, please visit: https://www.thecarexpert.co.uk/

ENDS

Notes for editors

* Overall new and used car finance data from January 2009 – June 2022 recorded by Finance & Leasing Association
** New and used car finance data from July 2021 – June 2022 recorded by Finance & Leasing Association
*** Average weekly earnings annual data from 2009 – 2022 recorded by Office for National Statistics

The Car Expert

Founded in 2011, The Car Expert is the UK’s most comprehensive automotive consumer advice site. With an audience of over two million readers a year, The Car Expert provides independent and impartial advice on every aspect of buying, financing, owning, and selling new or used vehicles.

The Rotten Tomatoes equivalent for the automotive world, The Car Expert consolidates reviews from 30 of the UK’s top automotive websites to create the Expert Rating Index. Bringing together science and data analysis, the index calculates a weighted average to give an aggregated score – Expert Rating – that is comparable across different brands and models.

The Expert Rating Index factors in the age of each review, so that newer reviews carry more weight than older reviews. It also breaks down the complex web of different scoring systems that various websites use in their reviews.

The Car Expert has logged over 12,000 reviews covering more than 400 cars and over 50 manufacturers, with its Expert Rating Index now trusted as the gold standard for rating and ranking new cars in the UK.

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