The number of used cars sold on finance rose for the fourth consecutive month, according to new figures published today by the Finance & Leasing Association.

But the new car market is more volatile.

Used car finance increased 7% by value and 11% by volume in October compared to October 2009.

The rise comes after the Government’s scrappage scheme led to a shortage of quality used cars.

Since the scrappage scheme – and other incentives such as the 15% VAT rate – ended consumers have reverted to the used car market when replacing their cars.

In the same month sales of new cars on finance dropped 11% compared to October last year, although the market was up 22% in the twelve months to October 2010.

There were also positive signs for motor finance providers, with the percentage of private new cars bought using dealer finance exceeding the 50% level for the first time since July 2009.

The recovery in the business car finance sector remains volatile.

The number of new cars bought on finance by businesses fell by 11% in October compared with the same month in 2009.

The business used car finance market reported volumes down by 34% over the same period.

Paul Harrison, FLA head of motor finance, said: “The continued revival of the used car market reflects a return to ‘traditional’ buying habits as buyers look to manage their budgets by seeking out affordable cars and finance.

"Until recently there was a shortage of popular models of used cars and this drove up the price. The end of the scrappage scheme has led to a rebalance of supply and demand.

But motor lenders’ Christmas cheer will be tempered by the prospect of a tough market in the New Year, as the VAT rise takes effect and public sector spending cuts impact on people’s pockets.”

Cars bought on finance by consumers through dealerships

Cars bought on finance by businesses