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Car finance packages at record breaking high

The Finance and Leasing Association have said £3.6bn was spent on car finance deals in March, a rise of 13% on the same period in 2016.

The Bank of England and the Financial Conduct Authority (FCA) have raised concerns surrounding the so-called Personal Contract Purchases (PCPs), but the majority of the purchases were financed in this way.


The bank have cited a recent rapid rise in consumer borrowing across credit card, bank loan and car loan borrowing, however Adrian Dally, head of motor finance at the FLA, said lenders were behaving within limits.

“We do not share their concerns, lending is responsible. This is a sustainable model going forwards.”

When cars are bought on PCPs, their new buyers effectively lease a car for a set period of time, up to four years.  They can then pay a final settlement to gain complete ownership of the vehicle, or return the car with no additional cost, as long as certain prerequisites have been met, mileage and condition for example.

Consumers spent a record £32.5bn on car finance packages in the year to March.  There are changes to Vehicle Excise Duty coming into effect in April that primarily consequence luxury cars, boosting sales value, after it suffered a drop in sales following the introduction to changes to be made in April.

Various consumer groups have come out and stated that consumers should weigh up the options carefully before committing to PCP deals.

Chief executive of the Money Advice Trust, Joanna Elson said “Today’s figures are a further indication of the popularity of car finance deals” and continued “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 has stated they are troubled about a “lack of transparency, potential conflicts and irresponsible lending in the motor finance industry”.

While in the main economists say they have concerns about the rapid growth in car finance packages affecting the consumer, others protest that it is ultimately the car manufactures who carry the most risk by guaranteeing used cars, as the consumer can hand back the vehicle if they can no longer make the required payments.


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