Car credit deals falling amid growing debt fears

Rising household debt is leaving consumers vulnerable a report has warned
Rising household debt is leaving consumers vulnerable a report has warned

The booming car loans market showed signs of a slowdown in the second quarter, but fears remain over a fresh financial crisis driven by ballooning consumer debt.

The number of cars bought on credit in the second quarter of 2017 was 16% lower than the previous year, according to the latest statistics from the Finance & Leasing Association (FLA).

Volumes for June 2017 fell by 8% compared with the same month in 2016, while the total value remained stable, which suggests lenders are providing bigger loans.

The drop in sales through credit coincides with a decline in new car sales this year, but it also follows a surge in dealership car finance, which has been rising by an average rate of roughly 20% every year since 2012.

The total stock of dealership car finance increased by more than £30 billion over that period, representing three quarters of total growth of consumer credit, according to the Bank of England.

A recent report from credit ratings agency Moody’s warned that rising household debt was leaving consumers vulnerable in the case of an economic downturn.

This is borne out in the data, which shows around 86% of private new car purchases used dealership car finance in the year up to June, compared with about half in 2009.

There were over a million new cars bought on credit over this period for the value of £18.3 billion, which accounts for around 86% of total private new car purchases.

Geraldine Kilkelly, head of research and chief economist at the FLA, said: “The recent trends in the consumer new car finance market very much reflect those in private new car sales.