Advertisement

New car finance payments go up as UK used car values take a dive

Monthly premiums on PCP finance deals are set to increase as finance providers face falling residual values

Van finance explained

Car buyers are facing longer and more expensive car finance deals in future as the sector battles falling used car values.

The Bank of England has warned that falling used car values are increasing the monthly payments as well as the contract lengths for drivers looking to take out a Personal Contract Purchase (PCP) agreement on a new car. 

Advertisement - Article continues below

It said the sector is facing "potential headwinds" from a number of sources, including the slowdown in real pay growth and a fall in residual values for used cars. 

Best new car deals 2017

Rupert Pontin, director of valuations at Glass’s said that newer used cars are losing more of their value more quickly than before. On average, a used car that is less than two-and-a-half years old is currently worth 57.6 per cent of its original value, down from 61.1 per cent in 2014. Pontin added: “This is likely to continue to be the case for the rest of 2017 and 2018.”

Finance deals like PCPs are based on a Guaranteed Minimum Future Value (GMFV) which is an estimate made by the finance provider in the beginning of the deal on the car's residual value at the end of the finance agreement. If used car prices fall beyond expectations it means dealers take a loss on the cars because they've overvalued them. Any future agreements would have to be amended to take into account the lower used car values, meaning buyers may end up paying more for their car. 

• Car finance market faces potential mis-selling scandal

The Bank of England said: “Increases in the cost of new cars and decreases in the expected future residual values of many used cars had put some upward pressure on monthly finance payments on Personal Contract Purchase plans.” 

It added: "Car companies had sought to offset this in a number of ways, including increasing the length of PCP contracts." 

Are you worried about the solidity of the UK's PCP market? Tell us in the comments below...

Advertisement
Advertisement

Recommended

VED road tax: how much does it cost?
car tax calculator
Consumer news

VED road tax: how much does it cost?

Confused by VED road tax? Our comprehensive guide explains how much you'll pay on your next car
3 Jul 2020
Six-month MoT extension ends on 1 August
Consumer news

Six-month MoT extension ends on 1 August

Department for Transport ends MoT extension on 1 August; cars due an MoT before that date still get extra six months
29 Jun 2020
BMW and Mercedes pause autonomous car partnership
BMW and Mercedes
BMW

BMW and Mercedes pause autonomous car partnership

German firms had previously agreed to work together on Level 4 self-driving systems, plans that have been paused following a "mutual and amicable agre…
19 Jun 2020
Check your car's mileage and MoT history
UK MoT tests could become less stringent
Consumer news

Check your car's mileage and MoT history

A Government website allows users to find the entire MoT history of any vehicle plus other details free of charge
5 Jun 2020

Most Popular

New 2020 Ford Puma ST teased for the first time
Ford Puma

New 2020 Ford Puma ST teased for the first time

The sporty new Ford Puma ST will make its debut later this year, with the same 197bhp 1.5-litre three-cylinder engine as the Fiesta ST
3 Jul 2020
BMW to make extras like heated seats subscription based options
News

BMW to make extras like heated seats subscription based options

New software update for models with iDrive 7 also includes automatic switching to electric power in city centres for plug-in hybrid models
2 Jul 2020
New Skoda Octavia vRS line-up completed as petrol and diesel models arrive
Skoda Octavia vRS Hatchback

New Skoda Octavia vRS line-up completed as petrol and diesel models arrive

Skoda has unwrapped the complete Octavia line-up, which now offers a choice of petrol, diesel or plug-in hybrid powertrains
3 Jul 2020