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. 

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. 

Advertisement - Article continues below

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...




Carmakers push European Commission to change CO2 targets in wake of coronavirus 

Combination of tight CO2 targets and closed dealerships see car makers ask EC “for a delay in the application of certain rules”
2 Apr 2020
Peugeot 308 SW - tyre
Consumer news

Tyre pressure, speed rating and depth explained

Maintain your tyres and you'll reap the benefits with an improved drive and lower running costs. We explain all
27 Mar 2020
Consumer news

How to scrap your car, and get the best price

How to scrap or recycle your car, and what prices to expect from the scrap yard
24 Mar 2020
Nissan Leaf - Long termer plugging in
Consumer news

Electric cars produce less CO2 than petrol equivalents

Study shows electric cars produce less lifetime CO2 than their petrol equivalents, both globally and in individual countries
24 Mar 2020

Most Popular

Hyundai Kona electric front
Hyundai Kona Electric

Hyundai Kona Electric to get increased range from July

UK-delivered Hyundai Kona Electrics will be outfitted with a handful of mechanical revisions, boosting the SUV’s maximum range to 300 miles
18 Mar 2020
Hyundai i20

New 2021 Hyundai i20 N to rival Ford Fiesta ST with 200bhp

New Hyundai i20 N to join i30 N in brand’s hot hatch line-up and our exclusive images preview how it could look
2 Apr 2020

New SEAT Leon 2020 review

The all-new SEAT Leon hatchback impresses with its blend of sporty handling and cutting-edge technology
3 Apr 2020