£160m a day: What we borrow to buy cars

HOUSEHOLDS borrowed more than £160million a day in March to buy cars amid growing fears of a dangerous new debt bubble.

Less than 24 hours after the Bank of England warned that family budgets are under pressure, it emerged that more than £5billion of car finance was issued in a single month.

More than £3.6billion of that was borrowed to snap up new cars, the majority via controversial Personal Contract Purchase deals – or PCPs. Consumer campaigners warn that these can be expensive and often carry hidden charges.

This marked a 13 per cent jump from March last year, according to figures from the Finance and Leasing Association (FLA).

It was triggered in part by a rush to buy new cars before reforms to Vehicle Excise Duty on April 1 that meant the vast majority of newly registered cars incurred significantly more tax.

However, there was also a 17 per cent increase in borrowing for used cars, which were unaffected by the tax changes. It rose to £1.4billion.

In total, 319,327 cars were bought on finance over the course of the month – the equivalent of more than 10,300 a day. It means households took out almost £32.6billion of car finance in a year to purchase more than 2.3million cars.

The borrowing binge has fuelled concerns that some firms are lending recklessly to prop up Britain’s car market. The City watchdog has already launched an investigation amid fears of ‘irresponsible’ lending in the car finance sector.

These concerns were underlined by a Mail investigation last month that revealed how motorists with poor credit records are being lured by online brokers into taking out high interest loans to buy cars.

Baroness Altmann, a former pensions minister, said: ‘The idea that we should always expect to borrow money to buy a car seems to have caught on. The ultra-low interest rate environment is clearly enticing people into taking on more debt.

‘A lot of car companies are rewarding sales staff for selling loans, without taking enough care that customers can repay them. But this irresponsible lending is how we got into problems in the first place.

‘Households face a day of reckoning if their income prospects deteriorate and interest rates don’t stay at these artificially low levels.’

The Bank of England said on Thursday families face a squeeze this year as inflation is expected to trigger a fall in real wages. It also warned it could raise interest rates sooner than expected.

This could pose a problem for many households that are borrowing through credit cards, loans and car finance.

Around 85 per cent of private car registrations were bought last year through some kind of finance deal. The majority of new car ‘buyers’ actually rent their vehicles through PCPs.

Adrian Dally, head of motor finance at the FLA, said: ‘This is a competitive market that is working well in the interests of consumers.’

‘Households face a day of reckoning’