The growing view in the City that car finance is a credit bubble waiting to burst is simply not warranted, says a new Market Report from Auto Trader.
The report addresses the common misconceptions that surround the car finance market and seeks to correct the misplaced comparisons with the housing market, sub-prime consumer lending in the USA and other forms of consumer credit.
More than 80% of drivers polled for the report and who had recently bought a car on finance said the final purchase was either within or below their initial budget. Furthermore, the seriousness with which consumers take the repayment of car finance supports the view held by Governor of the Bank of England, Mark Carney, who has noted in the past that car finance repayments are unlike most products bought on credit given the fundamental role that cars continue to play in people’s lives.
“Finance is not only crucial for new and used car sales generally, but it holds the key to cleaner motoring in the UK,” Auto Trader CFO & COO, Nathan Coe, said. “The cleanest are also the most expensive. We need car financing to thrive if more people are going to switch to electric and hybrid vehicles.”
He added that around 60% of recent car buyers who did not choose an electric vehicle said it was “due to the upfront cost,” and that “with no increase in grants by the Government and prices for new electric cars rising, it’s hard to see how electric adoption can be accelerated without finance playing a pivotal role.
“It is crucial that the issue of car finance is fully understood and that these misunderstandings are addressed, given that financing of the car market is so important for the economy and for the livelihoods of UK car buyers.”
The report also revealed that the growth of finance is changing the dynamics of the car market. Just over one third of recent car buyers claimed that purchasing on finance allowed them to drive a vehicle they would not otherwise be able to afford. On average, the value of vehicles driven on finance is £17,087, while the value of new vehicles purchased outright is £10,142 – a difference of £6,900, or 68%.