More than half of drivers (51%) are intending to buy a new or used car in the next six months, now that showrooms have re-opened and travel curbs are being lifted, according to research from comparethemarket.com.
Drivers are set to spend an average of £15,042 on these cars, with 39% planning to buy either an electric or hybrid vehicle. The main reasons that drivers cite for buying a car include the need to replace their old vehicle (27%), wanting to treat themselves after a difficult year (18%), and switching to a more environmentally friendly model (18%). A further 17% of drivers want to upgrade as they plan to take more road trips this year, and 14% of drivers plan to buy a car because they are worried about using public transport after the pandemic.
Nearly two-thirds of drivers (63%) thinking about buying a car in the next six months are planning to use some form of car finance to help cover the cost of the purchase. However, nearly half (44%) of drivers who said they had previously used car finance admitted they didn’t shop around for a better deal when taking out the loan. In addition, almost a fifth (19%) of drivers used the car finance offered by the dealership selling the vehicle. More than a third (38%) often believe these dealerships will offer the best deals.
However, in January the FCA introduced a ban on dealerships from using “discretionary commission finance”, which the regulator estimated meant consumers had been paying £165m a year more than they needed to.
Car dealerships also usually offer Hire Purchase (HP) or Personal Contract Purchase (PCP) loans. However, for most borrowers with a good credit history, a personal loan from a bank or building society often has a lower interest rate. Using a personal loan also has other advantages such as not requiring a deposit, no balloon payment at the end of the loan, and less risk of repossession if a loan repayment is missed. Borrowers say that the overall rate of interest is the most important factor for car finance (51%), followed by the length of the loan (37%). A fifth of drivers (21%) also wanted to ensure there is no balloon payment at the end of the loan.
Ensuring borrowers have the most appropriate credit product when buying a car is important as many have struggled to repay loans. More than a third of borrowers (35%) said they had problems repaying their car loans during the pandemic. This includes 15% of borrowers who took a payment holiday and 9% forced to default on their loans.
Rob Silvey, Manager for car finance at comparethemarket.com said “It is encouraging that so many motorists are keen to hit the road in new cars as lockdown restrictions have been lifted. Lots of drivers will be keen to make up for lost time with trips to visit friends and family and staycations. Others will understandably want to reward themselves after making it through a tough year. However, our research shows drivers do need to be careful to avoid being caught out by car finance when buying a new vehicle.”
“Taking the finance deal offered by a car dealership can be like getting foreign currency at the airport – it may end up costing considerably more for the convenience. Drivers should always try to shop around on car finance if they want to make sure they get the best deal.”