The amount borrowed by UK drivers to pay for cars hit a new record high in 2022, rising by more than £4billion from the previous year, according to the latest report.
Despite lower new and used car sales last year and a drop in the number of finance deals being concluded, analysis of annual data released by the Finance and Leasing Association (FLA) shows that borrowing has soared at £40.7 billion.
This has been partly due to the fact that the average finance amounts per vehicle have reached levels never seen before for new and used cars, explains The Car Expert.
This is despite interest rates soaring in 2022 and rising costs of living, which insiders say are putting worrying pressure on household finances.
Borrowing via car finance hit a record £40.7bn in 2022, according to new records. This is 263% more than in 2009
To put the rise in borrowing into perspective, in 2009 some £11.2bn was tied up in car finance.
This means that there has been a 263% increase between this date and last year.
For context, average weekly earnings have risen from £435 in 2009 to £614 in 2022, an increase of 41%.
New car buyers borrowed £25,325 on average in 2022, up from £23,746 the year before – and more than double the amount committed in 2019, which was around £12,000 13 years earlier.
Second-hand shoppers took on a debt of £15,475, up from £14,113 respectively in 2021, according to FLA data.
With borrowing hitting new highs at a time when the UK is grappling with a cost of living crisis, some motorists may find themselves in financial difficulty.
There are growing fears that many Britons locked into finance deals could struggle to sustain repayments and defaults, especially as average wages fail to keep up with this level of growth – and that food prices, energy bills and inflation remain worrisome.
But despite financial pressure from the cost of living squeeze last year, more than 2.2 million drivers used auto finance deals in 2022, up about 3% from 2021.
Stuart Masson, editorial director of The Car Expert, said: ‘The UK’s reliance on car finance has increased dramatically since 2009, and with another record year in total borrowing last year during the cost of car crisis life, we could see household finances under increasing pressure .
“Average borrowing for new and used vehicles has also increased again, despite rising interest rates.”
Masson added, “In the previous four years, more than 90% of new car buyers financed their car with financing from the dealership.
“However, this figure has dropped significantly to 84% – the main reason for this is the growing number of new electric vehicle sales, which are often financed by wage sacrifice programs benefiting from significant tax savings.
“As electric cars continue to grow in popularity, wage sacrifices will also increase.” This means that car payments are taken from an employee’s pre-tax salary, while you have to pay tax on the value of the car, the tax rate (called benefit in kind, or BiK) is much lower for electric vehicles than for petrol or diesel cars.
“As electric vehicles will only increase in popularity in the years to come, we will likely see a permanent change in the way new cars are financed.
“The Chancellor has promised that new electric vehicles will retain their benefit in kind until at least 2028, but remember that governments can turn around at any time.”
New car buyers have borrowed an average of £25,325 in 2022. With Britons struggling with squeezing living costs, there are fears that many will fall behind on payments.
The used car market saw the reverse of new cars with fewer vehicles sold than the previous year, but more of these cars were financed by lenders from dealerships.
About 600,000 fewer used cars – a 9% decrease – changed hands in 2022 compared to the previous year, according to SMMT data released last month.
However, the number of used car finance contracts increased by more than 130,000, or about 10%. On top of that, the average amount borrowed has increased significantly.
As the volume of auto finance transactions on new and used models declines, independent research has found that drivers are increasingly likely to abandon long-term engine deals and will look to keep their vehicles existing longer.
Mobility provider, Sogo, recently surveyed 2,006 UK drivers and found that just 14% would be much more likely to take on long-term leasing to finance their next vehicle than 12 months ago.
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