Cautious car buyers blamed for 10 per cent drop in car finance deals
“Challenging conditions” have been blamed for a downturn in car finance, but the outlook is brighter, say lenders
Private buyers are taking out fewer finance agreements for new car purchases, with some switching to salary-sacrifice schemes to buy electric cars, and others seemingly waiting for an improvement in the wider economic environment before investing in new wheels.
June figures just released by the Finance & Leasing Association say new car finance deals for consumers are down by around 11 per cent by volume, and 10 per cent by value compared to the same month in 2023. Overall, in the first half of 2023, the decline has been only three per cent, implying that consumers are becoming more reluctant to take on new credit arrangements, rather than gaining in confidence.
It’s not just a trend affecting new cars either, with the FLA also reporting that the value of June’s used car finance deals slumped by 13 per cent year-on-year, while the volume of new business fell by 10 per cent.
The FLA’s chief economist Geraldine Kilkelly described the falls “modest” in the face of challenging conditions.
“The fall in the consumer new car finance market reflects trends in private new car sales and the shift by consumers to using salary-sacrifice schemes to finance new battery-electric vehicle purchases,” she says. The FLA forecasts the year will end with only a marginal drop in the value of the car finance market overall, with new car finance up one per cent and used finance down three per cent.
AA Car Finance director Mark Attwell agrees that the current slump doesn’t greatly affect the longer-term outlook. “While inflation is easing, many consumers remain cautious about making significant purchases such as cars or homes. However, the Bank of England's decision to lower the base rate could boost consumer confidence in the coming months, and help to reinvigorate the car finance market,” he says.
According to Attwell, with inflation under control and the possibility of a further interest-rate cut, the business anticipates a resurgence in finance-backed sales.
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