Auto Trader has insisted that the car “finance bubble” is not about to burst, claiming that the affordability it delivers is key to social mobility and cleaner motoring in the UK.
Delivering the findings from the latest Auto Trader Market Report, the online classified advertising specialist predicted that used car finance penetration would reach 40% by 2023, adding that negativity surrounding automotive finance was as much of a threat to cleaner motoring as the “demonization of diesel”.
Auto Trader said that it sought to “correct misplaced comparisons with the housing market, sub-prime consumer lending in the US, and other forms of consumer credit” with the findings of the Market Report, which is the result of conversations with 4,000 consumers and includes data and insights from Auto Trader’s marketplace, which hosts an average of 55 million cross platform visits from car buyers each month.
The growing cynical view in the City that car finance is a credit bubble waiting to burst is simply not warranted said Auto Trader in a statement, adding: “82% of drivers who had recently bought a car on finance said the final purchase was either within or below their initial budget, and the seriousness with which consumers take the repayment of car finance supports the view held by the Governor of the Bank of England, Mark Carney, who has noted in the past that car finance repayments are unlike most products bought on credit given the fundamental role that the car continues to play in people’s lives.”
The Report highlights the appetite amongst consumers for finance. 52% of car buyers said that they already consider the cost of a car as a monthly price rather than the full retail price.
It found that 37% of car buyers claimed to have bought on finance because it enabled them to spread out their payment, 36% to get a better deal, and 36% because they couldn’t afford to purchase a car otherwise.
Those using finance typically pay 68% more than those buying their car outright (£17,087 vs. £10,142). However, the research claimed that this was not encouraging irresponsible spending, with the majority (82%) of car buyers purchasing on finance claiming to keep within their set budget.
Auto Trader chief financial officer and chief operating officer, Nathan Coe, added: “Finance is not only crucial for new and used car sales generally, but it holds the key to cleaner motoring in the UK. The cleanest are also the most expensive. We need car financing to thrive if more people are going to switch to electric and hybrid vehicles.
“59% cent of recent car buyers who did not choose an electric vehicle said it was due to the upfront cost, yet with no increase in grants by the UK Government and prices for new electric cars rising, it’s hard to see how electric adoption can be accelerated in the UK without finance playing a pivotal role.
“It is crucial that the issue of car finance is fully understood and that these misunderstandings are addressed, given that financing of the car market is so important for the economy and for the livelihoods of UK car buyers.”
Auto Trader’s Report also highlighted the role finance will play in driving a buoyant used car market.
It predicted that penetration of used finance will reach 40% by 2023 – approximately a 10% increase on the current level of penetration – with the increasing numbers of newer cars entering the market behind the shift.
In January 2013 approximately 69,000 cars advertised on Auto Trader were aged between two and four years old. As of January 2018, that figure is closer to 93,000, it said.