The consumer car finance market contracted in 2023, with both volume and value of new business falling by 5%. Mintel estimates that point-of-sale car finance sales will see slight growth in 2024.
UK Car Finance Market Analysis
In automotive industry, consumer caution has persisted, affecting demand for major purchases and borrowing. However, the outlook has improved as inflationary pressures ease and borrowing rates start to decline, which should boost confidence and interest in car finance in the second half of the year.
Distrust of car finance providers is a barrier among consumers. Almost half of drivers don’t trust car finance lenders to act in their customers’ best interests. Car finance providers should prioritise trust-building initiatives for all age groups, especially in light of the FCA’s intervention in the market and the ongoing review of the impact of discretionary commission models.
The shift towards hybrid/electric will expand car finance opportunities and prompt innovation. The growing EV market highlights the need to support consumers who are less familiar with the product and potential finance options.
UK Car Finance – Market Statistics
- UK car finance market predictions: With almost half of consumers thinking that transparency is the most important factor to trust a financial service provider, trust will shape the market in the next two years. As the Financial Conduct Authority (FCA) publishes the next steps in its review of the past use of discretionary commission arrangements (DCAs), car finance providers prioritising consumer protection and support can appeal to sceptical and distrusting consumers.
- UK car finance market insights: Personal contract plans (PCP) lead the way as the most common method of car financing, used by 55% of those who have financed their vehicle. At the same time, Mintel figures show that Hire Purchase (HP) is preferred for used cars, with PCP the option for most new car buyers; reflected also in the Finance & Leasing Association’s (FLA) industry data.
- UK car finance market analysis: Drivers aged 17-24 are likely to seek financing options, but also show optimism about buying a car outright. This indicates an opportunity to improve awareness and understanding of car finance in this demographic. Many also rely on family support or savings for car purchases, as creditworthiness and high insurance costs present challenges. Guarantor finance packages or assistance to build credit histories could help build loyalty in this group.
UK Car Finance Market Report – What’s Inside?
Key Topics Analysed in the Report
- Outlook for the car finance market, including the demand for finance and interest in electric vehicles (EVs).
- Implications of the FCA’s review of discretionary commission models, particularly regarding consumer trust.
- Competitive strategies, launch activity and advertising initiatives shaping the car finance market.
- Key recommendations for industry players to thrive in the market, as consumers seek greater reassurance when considering car finance.
- Opportunities arising from evolving consumer attitudes towards car financing.
Report Scope
This report focuses on car finance products sold to consumers at the point of sale. The most popular car finance products are hire purchase (HP), personal contract purchase (PCP), and personal contract hire (PCH) agreements.
Meet the Expert Behind the Analysis
This report was written by Utku Tansel. Utku is a member of the European Retail Team and is responsible for research and writing reports/content. He has almost two decades of success in driving global thought leadership, project/content management experience delivering strategic business intelligence and actionable insight to major multinational companies.
The shift to hybrid/electric cars, flexible financing models and green car finance provides scope for growth and innovation for the car finance market.
Utku Tansel
Senior Retail Analyst
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Executive Summary
- Opportunities for the car finance market
- Hybrid/electric shift expands car finance opportunities
- Consumers need more reassurance to use car finance
- Enhancing trust amid heightened regulatory focus
- Market dynamics and outlook
- Market size & forecast
- Market predictions
- Slow growth expected over the next five years
- Lower borrowing costs on the horizon
- FCA launches review into DCAs
- What consumers want and why
- PCP: leading car finance option for over half of finance users
- Graph 1: use of car finance products, 2024
- Only 14% of drivers expect to use car finance in the next five years
- Graph 2: intended purchase method for the next car in the next five years, 2024
- Over half of car finance buyers expect to opt for petrol/diesel cars
- Petrol/diesel cars remain the preference for car buyers
- Graph 3: types of car consumers expect to buy on finance in the next five years, 2024
- Low monthly payments would be main incentive to consider an EV/hybrid vehicle purchase
- Graph 4: electric/hybrid car purchase factors over petrol/diesel for the next car purchase, 2024
- Consumers require greater assurance to embrace car finance
- Only a third trust car finance lenders to act in the customers’ best interests
- Most are satisfied with their car finance deal, but trust in the sector is a weak spot
- Graph 5: consumer attitudes towards car finance, 2024
- Innovation and advertising
- Leveraging the power of technology
- New collaborations for LBG and Close Brothers
- Car finance advertising declines, digital and radio dominate
- Graph 6: total above-the-line, online display and direct mail advertising expenditure on car finance, by media type, 2021/22-23/24
- Graph 7: UK. total above-the line, online display and direct mail advertising expenditure on car finance and unsecured personal loans, 2019/20-23/24
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Market Dynamics
- Market size
- Car finance sales fell 5% to £39 billion in 2023
- Graph 8: value of car finance contracts sold at the point of sale, 2019-23
- Volume sales also declined by 5%
- Average advance continues to rise, albeit at slowest pace in 12 years
- Graph 9: average advance for consumer car finance contracts sold at the point of sale, 2004-23
- Market forecast
- Modest growth is anticipated in 2024, with market projections reaching £46 billion by 2029
- Market forecast – value
- Steady volume growth expected over the next five years
- Market forecast – volume
- Car finance segmentation and penetration
- Nine-year low in new car sales bought through finance
- Graph 10: new car finance plans, 2014-23*
- Graph 11: proportion of new private car sales bought with a car finance agreement, 2014-23**
- Salary-sacrifice schemes provide an alternative route for EV buyers
- PCP plans remain the leading finance option for new cars
- Graph 12: proportional distribution of consumer car finance contracts sold at the point of sale (new cars), by product type, 2021-23
- A fifth of used car sales funded by finance in 2023
- Graph 13: proportion of used private car sales bought with a car finance agreement, 2014-23**
- Graph 14: used car finance plans, 2014-23*
- Used car finance penetration stable
- HP is the leading financing option for used cars
- Graph 15: proportional distribution of consumer car finance contracts for used cars sold at the point of sale, by product type, 2021-23
- Selected key players
- A strong recovery for VW Financial Services
- FCE Bank saw growth in UK car finance revenue, but decline in volume
- New opportunities as buyers consider a wider range of manufacturers
- Graph 16: share of new car registrations (private, business and fleet), by manufacturer, 2019-23
- Black Horse grows car finance book by £500 million, but LBG sets aside £450 million for potential consumer redress
- Santander Consumer Finance focuses on profitability over revenue growth
- Close Brothers records mixed performance in 2023
- Moto Novo portfolio grew by 5% to £4.2 billion
- Macro-economic and regulatory factors
- Falling inflation has reduced pressure on household finances
- Graph 17: CPI inflation rate, 2021-24
- High fuel prices continue to be a concern for many car owners
- Graph 18: weekly price of unleaded petrol and diesel, 2020-24
- Interest rates start to fall in 2024, but borrowing pressures will remain
- Consumer sentiment: wellbeing is up but the recovery has slowed
- Graph 19: the financial wellbeing index, 2016-24
- Consumer confidence for the year ahead
- Graph 20: the financial confidence index, 2016-24
- FCA launches review into DCAs
- Lower payout expected for car finance mis-selling compared to PPI
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What Consumers Want and Why
- Method of acquiring current car
- A fifth of drivers used car finance to buy current car
- Graph 21: method of acquiring current car, 2024
- Finance penetration is higher among new car buyers
- Graph 22: method of acquiring current car vs type of car (new and old), 2024
- Use of car finance peaks among 25-44-year-olds
- Graph 23: method of acquiring current car, by age, 2024
- Lower borrowing costs should boost demand
- Graph 24: users of car finance for current car purchase (eg PCP, HP), by housing situation, 2024
- Type of car finance used
- PCP leads the way among car finance users
- Graph 25: use of car finance products, 2024
- Car finance preferences differ between buyers of new and used cars
- Graph 26: type of car finance product used, by new and used cars, 2024
- Positive sentiment creates opportunities for repeat business
- Graph 27: the length of current car finance plan, 2024
- Car purchasing intentions and methods
- Drivers typically underestimate the use of car finance
- Graph 28: intended purchase method for the next car in the next five years, 2024
- Under-45s represent main targets for car finance
- Graph 29: intended purchase method for the next car in the next five years by age, 2024
- Car finance packages to serve diverse needs
- Less than half of prospective finance users expect to buy an EV/hybrid
- Graph 30: types of car consumers expect to buy on finance in the next five years, 2024
- Switch to EV vehicles will change how people buy cars
- Used EV sales are shaking up the car market
- Electric/hybrid car purchase factors
- Petrol/diesel buyers can be tempted to switch at the right price
- Graph 31: electric/hybrid car purchase factors over petrol/diesel for the next car purchase, 2024
- Lower interest rates have less impact
- Green car finance can provide a point of differentiation
- Attitudes towards car finance
- Harness positive perceptions from current customers
- 48% of drivers do not trust car finance lenders to act in customers’ best interests
- Graph 32: consumer attitudes towards car finance, 2024
- The FCA’s review should intensify focus on building trust
- Build trust across all age groups
- Graph 33: consumer attitudes towards car finance, by age, 2024 – “I trust that car finance lenders act in the customers’ best interests”, 2024
- Targeting support at lower-income groups will boost perceptions
- Graph 34: consumer attitudes towards car finance – “I trust that car finance lenders act in the customers’ best interests”, by household income and financial situation, 2024
- Prospective customers are wary about car finance practices
- Strategies to enhance consumer trust
- Leverage positive perceptions from existing customers
- Drivers remain wary about using credit and borrowing costs
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Innovation And Marketing Trends
- Launch activity and innovation
- Black Horse introduces a new EV Hub
- Dacia Spring offers an affordable entry point for EV ownership
- Leveraging the power of tech: Close Brothers unveils remote ID checks
- Blue Motor Finance launches new customer portal “My Blue”
- Lloyds Banking Group and Aston Martin establish a new partnership
- Close Brothers Motor Finance joins Zuto
- Advertising and marketing activity
- ATL adspend falls 73% year-on-year
- Graph 35: total above-the line, online display and direct mail advertising expenditure on car finance and unsecured personal loans, 2019/20-23/24
- Digital and radio advertising account for the lion’s share of spend
- Graph 36: total above-the-line, online display and direct mail advertising expenditure on car finance, by media type, 2021/22-23/24
- Autozone and Zopa are the top advertisers
- Zopa’s TV ad showcases the convenience and affordability of its car finance solutions
- CarMoney focuses on low cost and 0% deposit options
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Appendix
- Market data
- Market segmentation: new and used car finance declines in 2023
- Car sales show signs of recovery as consumer confidence returns
- Nine-year low in new car sales bought through finance
- A fifth of used car sales funded by finance in 2023
- Volkswagen retains its leading position in the new car market
- Market forecast data
- Market forecast: value
- Market forecast: volume
- Advertising expenditure data
- Leading advertisers of car finance
- Leading advertisers – car manufacturers
- Report scope and definitions
- Products covered in this Report
- Product definitions
- Product definitions (continued)
- Abbreviations and terms
- Methodology
- Consumer research methodology
- Forecast methodology
- Other sources
- Nielsen Ad Intel coverage
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