Despite the current backdrop of economic uncertainty and the highly publicised rise in interest rates, consumer demand for motor finance remains strong, according to the latest data from Auto Trader

In a press release, the online marketplace said that based on over 1.9 million financial interactions last month, engagement is up over 46% on pre-pandemic levels. “With over 1.6 million finance calculator interactions already recorded in November, this month is on track to surpass October’s high,” Auto Trader said. 

The cost of borrowing has risen sharply on new cars, with the average rate climbing from 4.6% in November 2021 to 7.7% this month, according to the Auto Trader finance calculators. 

The growth in used car Annual Percentage Rate has been less steep, albeit from a higher base level, rising by just over 1 percentage point from 9.4% to 10.7% over the same period.

The Finance and Leasing Association’s (FLA) latest figures report second-hand car finance penetration is now at a record 45%, 

Consumer engagement

Auto Trader reported that its used car advert consumer interaction is also up sharply, with levels in October up 14% in both 2021 and 2020, and a massive 46% in 2019. 

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Notably, the data reveals a steady upward trajectory of engagement over recent months, with September and August recording a 43% and 36% increase on 2019 levels. And in January of this year, consumer interaction was up a comparatively conservative 22% on January 2019.

Fiona Mackay, Automotive Finance Director for Auto Trader, said: “All signs on our marketplace point to the growing importance of finance, especially amongst used car buyers. 

“With average second-hand prices up around 47% on pre-pandemic levels, coupled with the current economic turbulence, finance offers many car buyers a more manageable route to access their next car.”

Auto Trader data shows that nearly two-thirds of people (63%) want to complete their finance applications online before arriving at the forecourt. 

Shielded from the impact of rising rates

The reason that motor finance demand is remaining stable is largely due to motor finance propositions being very different from other financial products on the market, Auto Trader said in a press release.

Chief among the key differences is that motor finance is much less affected by base rate rises due to the fact consumers are in fixed PCP and HP contracts – it’s only when buying a new car or financing a balloon payment that a new rate may affect them. Even then, however, the financial impact is relatively limited. For example, a 1% increase on a £10,000 car equates to just £5.00 per month more versus the equivalent on their mortgage. What’s more, existing owners who choose to part-exchange their current car are shielded even further from the higher borrowing costs, with the value serving to reduce the gap of their new finance contract.

Mackay added: “Finance is the number one discussed topic amongst consumers in online chat enquiries on our platform. It not only highlights that finance is front of mind for many car buyers, but also the opportunity for retailers to inform and educate customers, helping to put these changes into the correct context.”   

Consumer car finance new business volumes fell by 5% in September 2022: FLA