Reverse gear on car deals

Market plunges 28% in 12 months

THE car finance market hit the skids in April, plunging 28%.

Figures show 61,434 vehicles were bought on finance through dealerships, compared to 85,436 the previous year. The value of those deals dropped 19% to just under £1.2billion.

Trade body the Finance and Leasing Association (FLA) said the sharp fall mirrored a drop in new car sales in April.

However, it comes amid growing concern about the car finance industry.

Just over 86% of new cars were bought on finance deals in the year to April.

The most popular of those is personal contract purchase (PCP) plans, a form of leasing where the buyer rarely ends up owning the car outright.

Instead, the monthly repayments are designed to cover the car’s depreciation until they trade it in for a new vehicle.

The growing use of PCPs had led to booming new car sales, but contributed to a big rise in household debt.

There are fears that customers may have been misled about interest rates and the value of their car at the end of the deal. An investigation found drivers on the minimum wage could afford a £19,000 Mazda sports car.

Meanwhile, a fall in used car prices – as a flood of nearly new vehicles come on the market – could prove another challenge.

Rupert Pontin, from car guide Glass’s, said: “At some point, in certain sectors, the values will tail off.”

But Adrian Dally, head of motor finance at the FLA, insisted fears about misselling weren’t supported by complaints data.

He added that there was no evidence used car prices were at risk of tumbling and said the number of borrowers struggling to repay loans was “at record low levels”.