Over the past few years, car finance has become an increasingly popular option for car buyers looking for new and used cars; in 2018, over 2.4 million cars were purchased through car finance – an increase of around 24% in just four years. These statistics meant that around 80% of new car registrations were a result of car finance deals.
Being able to spread the cost of a car has many benefits, whether you’re a first-time buyer or an experience driver. It’s much faster than saving-up for a bulk transaction, and means that your savings can remain intact. Furthermore, it often means that you can get a better quality car than you would through private purchase.
Another answer to the continued growth of car finance may lie in the introduction of more flexible car finance options, such as the personal contract purchase loan. The UK car finance industry was revolutionised by the introduction of PCP loans, which introduced a new way for car buyers with challenging financial circumstances to acquire finance. These days, it accounts for the majority of car finance deals due to its flexibility.
The Personal Contract Purchase (PCP) Loan prompted a change in the UK car finance industry. Instead of paying off the purchase value of the car, PCP meant that customers can instead pay off initial loan with interest, minus the Guaranteed Minimum Future Value (GMFV) of the car. This value does not change, meaning that monthly payments will remain fixed throughout the agreement.
With the introduction of PCP loans, car finance became much more flexible; monthly payments were lower than the payments for the same car through a Hire Purchase agreement. This meant that customers previously unable to afford a new car could now do so in a way that fitted comfortably within their monthly budget.
A PCP loan also gives buyers the opportunity to buy a new car with no deposit. A no deposit car finance deal means that the process of applying for car finance is further expedited – there’s no long period of saving up for a large, cash deposit before you can get accepted for a loan. As a result, it’s far a fantastic car finance option for those in complex financial circumstances – such as the self-employed – or those with poor credit ratings.
Despite fears over the post-Brexit economy, and a predicted drop in new and used car sales in general, car finance remains the top choice for car purchase. Splitting the cost of a car over low and affordable payments is far more appealing than the stress of a large cash payment, and the fixed payment rates afford a sense of security in uncertain times.
With options for zero deposit car finance, better cars, and more flexibility at the end of the contract, it’s no wonder car finance is gaining increasing popularity among new and used car buyers in the UK.