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Borrowing on cars balloons to record level: Some £41BILLION locked up in finance

Car finance troubles during the cost of living crisis: A whopping £39.6billion a year is tied up in borrowing on new and used cars as Britons face a squeeze on their finances

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

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.



New car financing: £5.8 billion

Used car financing: £5.4 billion

Total car financing: £11.2 billion


New car financing: £17.3 billion

Used car financing: £23.4 billion

Total car financing: £40.7 billion

Source: The Car Expert having analyzed figures from the Finance & Leasing Association

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.

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.

Cost of life

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.

Auto Finance Q&A

Q: What are the main car financing options?

A: Most people who buy a new or used car will do so using some sort of car financing. The most common ways to finance a vehicle are PCP (Personal Contract Purchase), HP (Purchase Hire), PCH (Personal Contract Rental) Car Leasing, Salary Sacrifice and a new emerging option, Car Rental Services. subscription.

PCP is currently by far the most popular way for individuals to finance a new or used vehicle.

Q: What is wage sacrifice?

A: Wage sacrifice is a way to lease a new car with payments taken from your pre-tax salary, rather than your after-tax salary. It’s a more complicated form of financing to understand, and your employer must be registered with a service provider to manage it, but it can be significantly cheaper than a lease or PCP on the same car, especially for electric cars.

Employees can sacrifice a fixed amount of their gross salary and in return they can rent a brand new eco-friendly car. There are three main salary sacrifice benefits for employees, including savings on income tax and national insurance, no deposit or credit check required, and an all-inclusive monthly fee.

Q: What are the options for those stuck in financing deals they can’t afford?

A: Under certain circumstances, you can settle a PCP or HP agreement early. There is a consumer right that is built into every regulated PCP and HP auto finance agreement – ​​the Right to Voluntary Termination (VT). Voluntary termination is a consumer’s legal right to end a financing agreement early and walk away under certain circumstances.

Voluntary termination tends to be more useful for HP financing than for PCP financing, but it depends on how the loan was set up to begin with and other potential complexities.

Q: Why is the UK borrowing so much for increasingly expensive cars?

A: British drivers are borrowing far more to finance their cars than just 10 or 15 years ago. Not only are more people financing new and used cars, but vehicles are becoming more expensive, so people are borrowing more per vehicle. Although wages have risen over the years, they have not kept pace with borrowing – weekly wages have risen 41% since 2009, but financing levels for new cars have doubled.

Although the cost of cars has increased over the last decade – inflation alone accounts for a good part of this increase – the problem is that buyers are borrowing more and more money to replace their cars with models similar, which may not be durable.

With significantly higher levels of debt, there is a greater chance that more people will repay their loans if they encounter unexpected financial problems, such as sudden increases in their household budget as seen in the last year.

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