Figures published by the Finance and Leasing Association this morning reveal that the number of cars bought on credit declined by eight per cent during June, suggesting that financing companies are making fewer but bigger loans. Amanda Stretton, Confused.com motoring editor and former racing driver, comments on what the car loan “timebomb” means to drivers taking on higher debt:
"With 90 percent of new cars in the UK being sold under finance, drivers should be doing plenty of research into the way they are going to pay for a vehicle and the cost implications that come with all finance options.
“Our own research shows drivers are taking out loans without always understanding the terms of the car finance option, which could end up costing them thousands of pounds. In fact, we found that half (47%) of buyers believe you own the car at the end of a personal contract purchase (PCP).
“PCP is a suitable option for many car buyers, usually for those who want a new, reliable car which is in frequent use and which they intend to change every few years. However, it has become the default position for some dealers with the focus too much on a high deposit and low monthly payments. While this might seem like an attractive option, when it comes to renewing in two to three years’ time, the person may not have a high deposit available for their second car - leaving them with a big surprise when their monthly payments shoot up. Drivers looking to purchase a car via PCP should be aware of this and consider whether they would be able to afford the car if the monthly payments were higher.
“Drivers must consider their financial situation when applying for a car loan to understand what they can afford, and what is suitable for them. By investigating the different types of car finance available they can make sure they have enough information to make an informed decision. Drivers can easily compare car finance at Confused.com, which allows customers to see exactly how much their monthly payments will be, plus an accurate indication of fees to find a solution that best suits them.”