What Percentage of Cars in the UK Are Financed?
The majority of new cars purchased in the UK are financed. In fact, PCPs make up 75% of the car finance market in the UK.
Furthermore, 2.1 million private car buyers finance their car through FLA members. Interestingly, one-third of consumers do not know that multiple applications for credit can damage their credit score.
So, the question is – “What percentage of cars in the UK are financed?”
85% of new cars are financed
More people are using car finance, and this has resulted in a glut of nearly new cars on the market.
According to Morgan Stanley’s automotive analyst, one third of car owners are unaware that applying for multiple credit lines could damage their credit ratings. In fact, more people are taking out PCP loans than ever before, and it is estimated that eighty-five percent of new cars in the UK are financed.
The average length of car loans has increased over the last year, rising by 2.37 months in Q2 2020.
The average length of loan terms has increased across segments of new-car borrowers, with all but the top-tier “super prime” group seeing an increase in their loan terms. By Q2 2020, the average length of new car loans was over 72 months.
However, this long-term pattern is likely to persist, as the number of people applying for car finance is on the rise.
PCPs account for 75% of UK car finance market
The PCPs finance deal is a popular form of consumer car finance in the UK. In 2010, about 60% of new cars were bought on finance.
It is expected that by 2020, that number will rise to 90%. According to recent figures, the UK has a total car finance debt of £75 billion based on 6.5 million vehicles. This high level of debt has caused alarm in some quarters.
The Bank of England has said that they are keen to regulate the industry responsibly and understand its effects on the economy.
In fact, UK banks hold £20 billion in PCP assets, equivalent to 9% of Common Equity Tier 1 (CET) capital. Those banks have been taking steps to reduce the risk by investigating PCP financing.
The FCA and Bank of England are undertaking research into PCP financing to ensure that it does not become a problem. However, these figures are far from complete. Whether PCPs are responsible for rising car finance debt is a matter for the banks themselves.
2.1 million cars financed by private customers through FLA members
The consumer car finance market grew by nine percent in 2018, but will only increase by two percent in 2020, according to the FLA, which represents the industry. It said that global chip shortages and economic uncertainty had slowed the industry’s recovery.
However, 2.1 million private cars were financed by FLA member organisations last year, worth £36.7 billion. To find out more about the industry, log into the FLA members’ area, where you can find consultation papers and additional briefing materials.
The CR analyzed the records of 858,000 loans made by 17 of the largest lenders in the U.S., including automakers, banks, and auto finance companies that cater to lower-credit consumers.
The data also includes loan packages packaged into asset-backed securities. The CR data includes details on the borrower, including monthly payment, estimated income level, type of vehicle and loan amount.
Cost of running a financed car
New research reveals the real cost of owning a car in the UK. Several elements of car ownership were examined, excluding repair and maintenance.
The cost of owning a car in the UK averages over 15% of a person’s income. Regional variations were significant, too. People in London and the North East tend to drive less than those in other parts of the UK.
However, these differences do not mean that car ownership is unaffordable.
UK drivers tend to change their cars every three to four years. As a result, new cars depreciate 15-35% in the first year and up to 50% in the third.
Similarly, new cars may be cheaper initially, but will end up costing more than an economy car in three years. So, it’s best to avoid buying a new car altogether and opt for a second-hand model.
