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According to the latest report, the amount British drivers borrowed to pay for cars in 2022 hit a new record, rising by more than £4 billion compared to the previous year.
Despite fewer new and used car sales and fewer financing deals signed last year, analysis of full-year data published by the Finance and Leasing Association (FLA) shows loan numbers have risen to £40 .7 billion.
It’s driven in part by average financing amounts per vehicle reaching unprecedented levels for both new and used cars, says The Car Expert.
This is despite rising interest rates in 2022 and the rise in the cost of living, which insiders say are putting worrying pressure on household finances.
Borrowing through car finance has risen to a record £40.7bn by 2022, new records show. This is 263% higher than in 2009
To put the increase in borrowing into perspective, in 2009 about £11.2 billion was tied up in motor financing.
That means that there has been an increase of 263 percent between then and last year.
By comparison, the average weekly wage has risen from £435 in 2009 to £614 in 2022 – that’s just a 41 per cent increase.
New car buyers borrowed an average of £25,325 in 2022, up from £23,746 the previous year – and more than double the amount earned in 2019, which was around £12,000 13 years earlier.
Used purchases left debt at £15,475, up from £14,113 in 2021 respectively, the FLA’s data shows.
With borrowing reaching new heights at a time when the UK is in the throes of a cost-of-living crisis, there is a chance that some motorists could find themselves in financial trouble.
There are mounting concerns that many Britons trapped in financing arrangements will struggle to keep up with their debt payments and defaults, especially as average wages cannot keep up with this level of growth – and food prices, utility bills and inflation remain alarmingly high.
But despite financial pressure from cost of living last year, more than 2.2 million drivers took advantage of car finance deals in 2022, an increase of about 3 percent from 2021.
Stuart Masson, editor at The Car Expert, said: ‘The UK’s addiction to car financing has grown significantly since 2009, and with another record year of total lending last year amid the cost of living crisis, we can see household finances under increasing pressure. .
‘The average borrowing capacity for both new and used cars has also risen again, despite rising interest rates.’
Masson added, “Over the past four years, more than 90 percent of new car buyers have financed their cars through dealer financing.
However, that has fallen significantly to 84 percent – the main reason for this being the rapidly growing number of sales of new EVs, which are often financed through pay cut schemes that benefit from significant tax savings.
“As electric cars become more popular, so will salary sacrifices. This means that the car payments are deducted from an employee’s pre-tax salary, while you have to pay tax on the value of the car, the tax rate (called benefit in kind or BiK) is much lower for EVs than for petrol or diesel cars.
“As EVs will only become more popular in the coming years, we will likely see a permanent shift in the way new cars are financed.
“The chancellor has promised that new EVs will keep their benefits in kind until at least 2028, but remember that governments can reverse at a moment’s notice.”
New car buyers borrowed an average of £25,325 in 2022. With the British in the throes of the cost of living, there are concerns that many could fall behind on payments
The used car market saw the inverse of new cars with fewer vehicles sold than the previous year, but more of those cars were financed through dealer lenders.
About 600,000 fewer used cars — a 9 percent drop — changed hands in 2022 compared to the previous year, according to SMMT data released last month.
However, the number of used car financing deals has increased by more than 130,000, which is about 10 percent. In addition, the average amount borrowed rose sharply.
With the volume of car finance deals declining for both new and used models, an independent study found that drivers are increasingly moving away from long-term motorcycle deals and want to keep their existing vehicles for longer.
Mobility provider Sogo recently surveyed 2,006 UK drivers and found that only 14 per cent would be much more likely to take out a long-term finance lease to finance their next vehicle than they were 12 months ago.
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