Using finance deals to purchase new cars has become increasingly popular over the past year with over Â£30 billion being spent, according to the BBC.
Many of the deals were Personal Contract Purchases (PCPs) whereby buyers basically pay a deposit which is usually around 10% of the car’s price, and then rent the car for up to four years. At the end of the contract there is then the option to either pay a lump sum to keep the car or instead return it to the dealer.
Undoubtedly to some this is a very appealing offer as a previously unattainable car can suddenly become accessible to them. However, the Financial Conduct Authority have expressed their concerns. Due to the increase in the levels of financial borrowing here in the UK, they stated that there is a “lack of transparency, potential conflicts of interests and irresponsible lending in the motor finance industry”. Some analysts even predict that the rising popularity of car finance deals will contribute to the next financial crisis here in the UK due to the massive increase in debt levels.
So is it all bad news then? Perhaps not, as some argue that because consumers are able to return their cars if they can no longer afford the payments, people are less likely to get in to and stay in debt. Also, because some dealers often combine service and maintenance packages, warranties and insurance into one monthly payment, unexpected costs can tend to be avoided.