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Despite private new car sales falling more than 6% in 2018, it was yet another record-breaking year for car finance borrowing for both new and used cars.

The December and full-year data was published today by the Finance and Leasing Association (FLA), the lobby group representing all the major car finance lenders in the UK – including all the car manufacturer-owned finance companies.

As reported last month by the Society of Motor Manufacturers and Traders (SMMT), private new cars for 2018 were down by more than 6% on the previous year. Yet the FLA finance numbers claim that the number of private new car finance deals was only down by 3%, meaning that ever-more car buyers are using dealer-sourced finance for their new cars.

Results for December 2018 were in line with expectations. The number of new car finance deals was down 4%, matching the private new car sales results published by the SMMT. Total money lent by car finance companies was the same as 12 months ago, pushing the average amount borrowed to a new record of more than £21,000.

Used cars were also as expected, with the number of deals up by 5% and the amount borrowed up by 9%, averaging just under £12,500 of debt per car.

Sales vs finance data, full-year 2018

Record lending despite fewer new car buyers

The total amount financed on new cars was actually up 3% to £19.4 billion – about £600 million more than 2017 – despite there being 30,000 fewer car loans.

Just under 960,000 private new car buyers took out some form of car finance in 2018, usually a personal contract purchase (PCP), with a record total of almost £19.4 billion borrowed. This works out to just under £20,200 per car, which is more than 6% more than the previous year’s record average borrowing of £18,900 per car.

Car finance borrowing is continuing to accelerate at a much faster rate than average weekly earnings or inflation. Based on the above numbers and the Office for National Statistics data on average weekly earnings, average car finance debt is now up to the equivalent of 39 weeks of earnings – that’s up from 29 weeks at the start of the decade.

Given that we know salaries are not increasing anywhere near as much as borrowing, and that PCP payments are going up due to lower used car residuals and slightly higher interest rates, we have to assume that buyers are taking increasingly longer terms (eg – a four-year PCP instead of a three-year PCP), which will be hurting new car sales significantly.

Used car borrowing continues to accelerate

It’s an even more record-breaking story for used car finance, with more buyers borrowing more money on used cars from dealerships.

Used car sales results for 2018 have not yet been published, but are expected to be slightly down on 2017 levels. For used car finance lenders, however, it’s all sunshine and rainbows.

The number of used cars financed by FLA members was up 7% to 1.45 million cars, with the total amount of debt up by 13% to more than £17.5 billion. This makes the average amount borrowed just over £12,000.

No Brexit fears apparent for either buyers or lenders

The monthly data for new and used car borrowing appears to show no signs of slowing down, despite the car industry repeatedly claiming that Brexit uncertainty is keeping buyers away from showrooms.

There is also no sign of any reticence of finance companies to lend money to consumers, with yet another year of record lending for both new and used cars.

The Executivecondominium has been tracking the FLA and SMMT data every month back to the start of 2009, so we have a good picture of how the relationship between car sales and car finance has developed over the last decade.

The amount of money being lent every month in 2018 followed a fairly consistent increase throughout the year. This, in turn, followed similarly consistent monthly growth going all the way back to the start of the decade, with no appreciable downturns at any point.

What happens after Brexit remains to be seen, of course, but the data suggests that customer demand is unlikely to suddenly collapse.

Stuart Masson
Stuart Masson
Stuart is the Editorial Director of our suite of sites: The Executivecondominium, and . Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

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