Brits borrowed a record £41 billion to buy cars in 2022, but experts said today that may be the peak, with loans for wheels left with only one way to travel.
As the cost of living crisis and rising interest rates put the brake on affordability, there is also the looming ban on the sale of new petrol and diesel vehicles in 2030, with buyers of electric equivalents increasingly funded by salary sacrifice schemes.
The Car Expert, an independent consumer advice site, has looked through numbers out last week from the Financing and Leasing Association and noted a drop in the proportion of new cars bought via loans. It fell to 84% from over 90%, a level held above for the last four years.
Its editorial director, Stuart Masson, said: “The UK’s addiction to car finance has grown significantly since 2009, and with another record year of total borrowing last year during the cost of living crisis, we may see household finances under increasing pressure.”
Taken with the so-called “benefit-in-kind” tax breaks designed to encourage the move to electric cars, it could all mean a drop in loan financing for cars is ahead. Masson added that tax breaks via salary sacrifice schemes for electric vehicles (EVs) were “the principal reason” for the drop in the proportion of loan-financed purchases.
“As EVs are only going to get more popular in coming years, we are likely to see a permanent shift into how new cars are financed. The chancellor has pledged that new EVs will maintain their benefit-in-kind advantage until at least 2028.”
Average car loans for new cars reached £25,325, with the equivalent for second-hand cars at £15,475. That’s “a huge burden” according to The Car Expert.
