With many Brits now looking to cut back on costs due to the cost of living crisis, motorists are looking for ways to save money and make their cash go further for longer – especially on car purchases.
Reviewing internal data, the experts at car finance company Carmoney have identified key trends from 2021 to 2022 showing the impact of the economic crisis on car buying behaviour.
105% Increase in motorists using finance on their next car purchase compared to 2021
Carmoney has revealed a staggering 105% increase in car finance applications in 2022 compared to 2021* – and most Brits are purchasing their next car with zero deposit. With less overall disposable income, salary freezes and higher inflation rates affecting how far our money can stretch, many motorists in the UK are no longer able to afford to buy their next vehicle outright, which explains the huge increase in those seeking finance options to help with their purchase.
In 2021 there were 3,736 applications for finance compared to 7,662 in 2022.
53% Increase with zero deposit car finance compared to last year
In 2022, there has also been a 53% increase in drivers applying for car finance with zero deposit compared to 2021. The higher the amount of deposit you can put down, the less you will pay back in your agreement. However, with many facing personal financial uncertainty, lower wages and higher cost of living crisis, drivers seeking to buy their next car are often unable or unwilling to put down a decent size deposit to reduce monthly payments.
70% Increase in drivers aged 18-24 applying for finance
There has also been a staggering 70% increase in young drivers applying for finance compared to last year. In the 18-24 age bracket, drivers are more likely to be purchasing their first vehicle and looking for a more affordable way to do so. Interestingly, further up the scale, there has been a 17% decline in the 45-54 age bracket – this could be due to the older generation preferring to stick with their current vehicle for longer or opting for more reliable models.
Ford is the most financed car brand
When looking at which car brands were most likely to be financed in 2022, CarMoney discovered that Ford came out on top, followed by Vauxhall and BMW.
Three things to consider when taking out car finance
If you’re not able to purchase a car outright with cash due to a tight budget, then exploring the option of car finance may be more suitable for your needs – and can get you on the road faster.
Consider these three things before deciding whether to finance your next car purchase:
1. Decide if you want to own the car at the end of the payment term
Firstly, there are several avenues available when looking at taking out car finance, including:
Hire Purchase (HP) – This is simply a form of car finance that allows you to spread the cost of the vehicle over several months, and the monthly price will pay off the car plus any interest for the cash borrowed. This HP cost can be spread over 30-60 months.
Personal Contract Purchase (PCP) – Different to a Hire Purchase contract, with PCP you are not paying for the car itself, but the vehicle’s depreciation. For example, if you are looking to buy a car for £15,000, you would pay a monthly rate set by the lender to compensate for the vehicle’s loss in value. After the set term period, you can hand the car back to the lender, or you can pay a lump sum to buy the car. This option is ideal for those who like to change their car regularly.
Personal Loan (PL) – A personal loan is another way to afford to buy a car outright. The loan is then paid back over a set length of time, often at a fixed interest rate.
Car Leasing (CL) – An arrangement is made that you make regular payments for using the vehicle, but you don’t actually own the car itself. The car leasing cost is calculated based on the value of the car, how long you will use it and an agreed mileage allowance.
Consider if you wish to fully own the car at the end of the agreed payment period or if you’d be happier to move onto another vehicle, and if paying a higher interest will affect your finances.
2. Review your financial situation before agreeing to any arrangement to avoid risk of defaulting on payments
A major benefit of car finance is that if you don’t have a large sum of disposable cash to buy a car outright, you have the more affordable option to get a vehicle by spreading out the cost over several months. However, before signing anything, you must agree on an affordable fixed monthly payment with the dealer or finance company to ensure that you can comfortably afford the repayments. It is important to consider that you may have to face a tighter budget and the potential risk of losing the vehicle if repayments cannot be made.
3. Choose a car to fit your driving requirements to avoid mileage limit penalties
Chances are that if you were buying a vehicle outright, it would be at the lower end of the scale in terms of value. With car finance options, you may be able to acquire a more reliable vehicle, with newer features and lower mileage. However, you will most likely have to agree to a mileage limit when taking out car finance. This can be anything from 10,000 to 30,000 miles which should be factored into your driving requirements – if you travel long distances regularly or commute for work, it could affect negotiations and you may be hit with penalties if you go over the limit.
Andrew Marshall, Marketing & Partnerships Manager at Carmoney says: “Everyone is looking to tighten their belts this year due to the current financial crisis, and motorists are certainly feeling the pinch. It is no surprise, then, that we’re seeing more motorists applying for the finance option when it comes to purchasing their next car – this enables drivers to leave with a new vehicle without the initial large payment that many people won’t be able to afford right now. We also expect to see more people opting for lower deposits and lower-value car models to keep within their budget. We would advise motorists to research finance options that they can comfortably afford and bear in mind APR rates in order to avoid the risk of falling behind on payments.
