Used car finance amidst the cost of living crisis

According to Bank of England data published on October 31st, consumer credit borrowing increased by £0.7 billion in September, a reduction on the £1.2 billion of borrowing in August and the lowest level since December 2021. The increase in borrowing was split between £0.1 billion on credit cards, which fell from £0.7 billion in August, and £0.7 billion through other forms of consumer credit (such as car dealership finance and personal loans, which the Bank groups together).

Assessing dealer finance, the most recent Finance & Leasing Association (FLA) data points towards an upward trend. The consumer used car finance market reported new business up 19% by value and 8% by volume in August compared with the same month in 2021. In the first eight months of 2022, new business volumes in this market were 10% higher than in the same period in 2021.

Dealer finance is performing well in what is a more challenging economic landscape that, according to Moneyfacts data published at the end of September, saw average unsecured loan rates hit their highest in six years.

Commenting on the outlook for used cars and used car finance, Debbie McKay, Commercial Director of Motor Sales, notes;

“The cost-of-living challenge is adding to the appeal of the used car value proposition sustaining the strong demand driven by the continuing supply issues facing new cars. Within what remains a robust used market, dealer finance remains competitive with other unsecured loan options. Still, it is not immune to broader interest-rate rises affecting all lending forms.

“The strong performance by used car finance, which has increased over the last few months, reflects the demand for used cars and may also reflect a historical trend that has seen unsecured lenders tighten access to credit. While dealer finance underwriting has been affected by the rapidly evolving economic impact on people, most notably in ensuring acceptances are affordable, we can provide some valuable options to help dealers support their customers.

“We are making PCPs available on older cars now, and we can help dealers to encourage their customers to consider an alternative, lower cost used car. We and dealers working collaboratively must ensure that people do not over-commit themselves financially with the outlook for high inflation continuing.”