Surge in car finance despite falling sales


The car finance sector has started 2018 with some surprisingly good results, based on the information published last week by the Finance and Leasing Association.

Despite private new car sales falling by nearly 10% in January, point-of-sale consumer car finance (ie – finance arranged via car dealers) on new cars was down by only 4%. In addition, the amount borrowed was up by 4% on last year, meaning that the average amount borrowed on new cars was up by more than 8% compared to the same month in 2017.

It’s a bit early to say whether this means we can expect an even bigger result than last year’s record levels of car finance debt, but it’s a worrying start.

Point-of-sale finance continues to monopolise the new car finance market, with more than 88% of private new car buyers using finance sourced by the dealer to fund their cars. This is up from about 86% a year ago. Most buyers use a personal contract purchase (PCP) to fund their new cars, borrowing more than £19,000 per vehicle on average in January.


Cars bought on finance by consumers through dealerships, January 2018

New businessJan 2018% change on prev. year3 months to Jan 2018% change on prev. year12 months to Jan 2018% change on prev. year
New cars
Value of advances (£m)1,167+43,686-118,840+1
Number of cars61,204-4186,674-9988,025-7
Used cars
Value of advances (£m)1,544+203,785+1515,697+12
Number of cars131,870+13320,855+101,372,597+7
Total cars
Value of advances (£m)2,711+137,471+634,537+6
Number of cars193,074+7507,529+22,360,6220

Data (c) Finance and Leasing Association

Used car finance continues to soar

The news for finance companies was even better on the used car front. The number of finance agreements sold increased by 13% compared to the same month last year, while the total amount borrowed increased by 20%, meaning that average borrowing on used cars increased by 6%. Used car buyers borrowed, on average, £11,700 in January.

Dealer-sourced finance has continued to grow at a substantial rate over the last decade, with the total amount lent to car buyers in January 2018 more than double what it was five years ago.

It is hard to say how much this continuing growth can be attributed to people choosing a used car over a new one, as used car finance growth has been on a steady upward trend since 2011. Private new car sales started falling (year-on-year) in April 2016 and have fallen every month since then, but there doesn’t appear to have been a corresponding boost to used car finance levels that would indicate it’s all quite that simple.

Will this increase the chances of another interest rate rise?

This is the third month of results published since the Bank of England increased the base interest rate from 0.25% to 0.5% in November 2017, and it has clearly done nothing to slow the car finance market.

Obviously, car finance on its own won’t determine the Bank’s monetary policy, but it is a clear sign that consumers are not reducing their level of borrowing.  The amount of debt per customer is at record levels, and continuing to rise each month. If this behaviour is being repeated in other sectors, like personal loans and credit cards, we can expect to see another interest rate rise sooner rather than later.


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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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