7:11 am, July 24, 2023
The cost of car finance may be rising but that isn’t putting people off the idea of taking out a loan to buy their next vehicle.
That’s according to Auto Trader, which has just published its latest Monthly Market Intelligence report.
The report for June revealed that the average APR for a new car was now 4.5 percentage points higher than it was two years ago, at 8.4 per cent.
But although there had been a softening in the volume of cars bought on finance, Auto Trader said it was seeing record levels of consumer engagement with its finance calculators.
According to industry observations, finance sales have softened largely because of people having higher equity and more cash following Covid so they are putting more money down as a deposit and topping up with a personal loan.
The higher APRs aren’t putting people off finance because the actual impact on their monthly payments is minimal at around £8 more per month for a used car than last year, said Auto Trader.
It added that with average used prices increasing dramatically over the past few years, more people were turning to finance to make their next purchase.
Rachael Jones, Auto Trader’s director of automotive finance, told Car Dealer exclusively: ‘Given the growing squeeze on household finances, the rising interest rates are a concern, but we’re seeing very little direct impact on demand for finance.
‘Unlike tracker mortgages, car finance is a fixed monthly cost, which means in-contract drivers don’t need to worry about base rate increases impacting their monthly outgoings.
‘And for those who are in the market for a new car, it’s worth putting the increase into context.
‘While the recent rise in interest is adding hundreds of pounds to the average monthly mortgage bill, the average used car finance payment is only up around £8 a month on last year.’
She added: ‘On our marketplace, the growth in rates is having no effect on consumer demand.
‘With average used car prices up around £3,500 in just two years, more drivers than ever are considering finance to help fund their next car, with the number of people using our finance calculators increasing 15 per cent on last year.’
Auto Trader’s report for June also revealed:
- The first half of 2023 ended with 466m site visits – 61m more than the previous year
- Site visits during the month were up 11 per cent on last year’s levels
- Used car demand was two per cent ahead of the previous year as supply remained constrained, falling by four per cent in June
- Used car sales increased three per cent year on year
- Used car retail prices rose by 3.2 per cent on a like-for-like and year-on-year basis in June, marking 39 months of growth in a row
- Used EV prices stayed 19 per cent below last year’s levels
Jones also spoke to Car Dealer recently about the Financial Conduct Authority’s upcoming Consumer Duty and its impact on car dealers.
Dealers who aren’t ready for the new regulations – which come into force on July 31 – should be worried, she said, but there’s plenty of help for retailers who aren’t primed.
Also in the interview, which you can watch below, Jones tells how Auto Trader has changed because of the new regulations, short- and long-term trends in the motor finance sector, when APR rates will come down plus used EV prices:
