Drivers owe £58bn on car finance

DRIVERS owe £5 billion on car finance, according to the Bank of England.

In its latest risk assessment, the Bank said the figure represents an increase of 15 per cent over the last year.

The total stock of car finance has increased by £30 billion since 2012. About 5 per cent of cars were bought on finance last year, compared to just half in 2009.

About two-thirds of private new car buyers do so through personal contract purchase (PCP) deals – usually from the car makers, but often from banks.

In these cases, most of the risk lies with the bank rather than the borrower.

The borrower makes monthly payments for a fixed period after which they can either return the car or buy it.

The price for buying the car is agreed at the outset based on the predicted value of the car in the secondhand market. But many drivers choose to ‘flip’ to another finance deal to buy a newer, better car.

The Bank said firms offering PCPs could see up to £1.7 billion in losses if the value of the car is 30 per cent less than expected.

The Bank’s report also found that consumers owe £6 .1 billion on credit cards, up 9.7 per cent over the last year.

Many cards offer lengthy introductory periods on purchases, allowing borrowers to rack up more debt interest-free.