Used cars £25,000 more than new models

Supply chain crunch and rising interest rates push up cost of second-hand vehicles on finance deals

Used cars are costing up to £25,000 more than new cars as manufacturers warn the wait for new vehicles could be as long as a year. Consumers have to pay thousands more for older cars compared with buying new. Pent-up demand from drivers unwilling to wait for new models and higher interest rates have forced up debt repayments, leading to a “used car premium”. The interest paid on personal contract purchase deals for used cars has risen while rates for new cars have fallen.

USED cars are costing up to £25,000 more than new cars as manufacturers warn the wait for new vehicles could be as long as a year.

Consumers have to pay thousands more for older cars compared with buying them brand new. A combination of pent-up demand from drivers unwilling to wait for new models, and higher interest rates forcing up debt repayments, has led to a “used car premium”.

The interest paid on personal contract purchase (PCP) deals for used cars has risen while rates for new cars have fallen. This came after prices for used cars hit a record high as a result of huge delays for new models stemming from global supply chain issues and a worldwide shortage of microchips.

Large numbers of second-hand vehicles, which typically depreciate over time, have increased in price and are now more expensive than brand new equivalents. However, the sting in the tail for drivers is that the average rate of interest for second-hand car finance deals has gone up, while that charged on new cars has dropped.

PCP is a “third way” between renting and buying a car, where a driver buys some equity in the vehicle while leasing it. Monthly repayments tend to be lower than hire purchase agreements or traditional bank loans. Drivers typically make a “balloon” payment at the end of the lease to own the car in full, or take out a new lease deal.

Santander Consumer Finance now charges 7.85 per cent interest on a second hand car, up from 7.69 per cent last year. This is expected to keep increasing as interest rates rise further. Rates for new cars have fallen to 4.3 per cent from 4.7 per cent, but buyers must wait months, or even a year, for the keys.

A lightly used modern Land Rover Defender with 10,000 miles on the

‘Used car repayments will continue to rise if the Bank ups rates again later in the year’

clock costs around £72,000. New models sell for less than £62,000. On a three-year PCP deal with a £10,000 deposit, used models now come with a premium of almost £26,000 to a new model, because of the gap in interest rates and purchase prices.

Similarly, a one-year-old Dacia Sandero, Britain’s cheapest car, having done 10,000 miles, costs £12,481, according to valuers Cap HPI. Consumers would pay £312 a month on a three-year PCP deal, charging 7.85 per cent with a £2,500 deposit. New models have a list price £10,173 but cost £228 a month on a lower 4.3 per cent rate. Overall, the used model would cost £5,333 more.

Lenders have reduced debt costs for new cars, as manufacturers have been willing to subsidise loans to encourage sales. Interest rates on used cars have risen in line with increases to central rates. The Bank of England has increased its base rate to 1 per cent, from an all-time low of 0.1 per cent since December.

Prof David Bailey, an economist at Birmingham University, said used car repayments would continue to rise if the Bank upped rates again later in the year, as is expected. Close Brothers, a car finance lender, has also increased its repayment charges.

The cost of used cars is likely to remain high in the short term. Waits for new cars are high at most manufacturers and can be more than 10 months for a VW Golf, according to Carwow, a comparison site. BMW fans must wait a minimum of nine months.

Steve Fowler, of Auto Express, a car magazine, said there was “light at the end of the tunnel” but wait times would stretch in many cases “until the end of the year and beyond”.

Higher prices have led owners to hold onto their vehicles and adopt a “mend and make do approach”, according to Paul Evans of insurers Co-op. The firm said this week that there were now more than nine million cars on the road with more than 100,000 miles on the clock, while eight out of 10 cars are now between six and 10 years old.

“Many people just aren’t in a position to splash unnecessary cash on a new vehicle,” he said.