05302017

Car finance deals soar to new record

Land Rover Discovery in car showroom

The value of finance deals used to buy new cars has soared to a new monthly record, according to latest figures.

Motorists spent £3.6bn on car finance deals in March, a rise of 13% on the same month in 2016, the Finance and Leasing Association (FLA) said.

The vast majority of the purchases were via so-called Personal Contract Purchases (PCPs).

The Bank of England and the Financial Conduct Authority (FCA) have raised concerns about such deals.

The Bank’s worry is in relation to levels of consumer borrowing.

However Adrian Dally, head of motor finance at the FLA, said lenders were behaving responsibly.

“We do not share their concerns,” he told the BBC. “Lending is responsible. This is a sustainable model going forwards.”

Popular deals

Both new and used cars can be bought on PCPs, under which buyers effectively rent a car for up to four years.

They can then pay a final lump sum or return a car at no extra cost at the end of a contract – as long as it is within an agreed mileage and in good condition.

Car Finance Deals: Do they spell trouble?

Including used cars, consumers spent a record £32.5bn on car finance deals in the year to March, the FLA said.

March was a record month for car sales as a whole, as it came ahead of changes to Vehicle Excise Duty in April.

The changes particularly affected luxury cars, boosting the value of sales. Following the introduction of the changes in April, sales fell back.

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PA

Image caption

Car sales have boomed in recent years

Consumer groups said that motorists should think carefully before committing to PCP deals.

“Today’s figures are a further indication of the popularity of car finance deals,” said Joanna Elson, chief executive of the Money Advice Trust – the charity that runs National Debtline.

“For many consumers this offers access to a car that would otherwise be unaffordable, however it is important that the affordability of offers is fully assessed and that consumers are clear on the terms so that they know from the outset what they are committing to, and can plan accordingly.”

The FCA is investigating car finance deals. It said it was worried about a “lack of transparency, potential conflicts of interest and irresponsible lending in the motor finance industry”.

But while some economists are worried about the growth in car finance deals, others say concerns are overdone.

That is largely because motorists can hand their cars back if they can no longer afford payments.

Ultimately it is the car manufacturers who carry the risk on such deals, as they guarantee second-hand values.

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