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Why Drivers Are Choosing To Finance Their Cars During The Cost Of Living Crisis

When it comes to car ownership, an increasing number of people are struggling to make purchases due to financial difficulties and the current economic anxiety we’re all facing. The ongoing cost of living crisis has led to a huge rise in the number of drivers taking their cars off the road and switching to financed alternatives in a bid to save money.


A decline in new car sales

New research has found that motorists are considering ditching their dreams of buying a new car and switching to a pay monthly deal instead just to keep their cars running. There has been an ongoing decline in new car sales, because of rising fuel prices, cost of living and economic uncertainty, and car buying now is even more of a considered investment than it was before. But going without a vehicle isn’t practical for everyone, which is where more drivers are turning to car finance to cut costs and still have access to a vehicle.

What is car finance?

Financing a car effectively means borrowing money to pay for a vehicle then repaying that money in instalments to a car dealer or broker. There are various methods of financing the purchase of a vehicle, whether it is a new or used car. Instead of paying the full purchase price upfront, car finance allows a person to spread the cost of the car over a certain period of time, through payments that include interest.

There are several types of car finance available, including:

  • Hire purchase: This is the most common type of car finance, where the buyer pays a deposit and then makes regular payments (usually over two to five years) until the full cost of the car is paid off.
  • Personal contract purchase (PCP): This is a type of car finance where the buyer pays a deposit and then makes monthly payments over a set period of time. At the end of the agreement, the buyer has the option to make a final payment and take ownership of the car or return the car to the dealer.
  • Personal loans: These are loans from banks or other lenders that can be used to buy a car. The buyer can then make repayments on the loan over a set period of time, with interest added.

Car finance is a way for people to buy a car even if they do not have the full amount available upfront. However, it’s important to research and compare different car finance options to find the best deal for your needs and budget.

What are the financial benefits of car finance?

Affordability: The average cost of a used car in the UK is over £17,000, ranging based on the make, model and size of the vehicle. But this is a huge sum of money that few of us can afford to spend right now, with the rise in inflation and many people struggling to survive on their income at the moment. Getting a car on finance is an easy way to bypass the need for a huge upfront cost, and because you’re paying for a vehicle over an agreed time period, you know exactly how much you need to budget for every month which makes vehicle ownership much more accessible. 

More Options: When a driver opts for a financed car, they have the opportunity to negotiate a range of different payment options to suit their budget and lifestyle. It’s a much more manageable way of buying a car, particularly during such difficult financial times. There are also, naturally, many different makes, models and car dealers to choose from, so drivers can find a cost-effective solution to suit their needs based on what they can afford to spend. And when all payments are made in accordance with your contract, you’ll own the vehicle outright which means no more monthly payments or additional fees to worry about. 

Credit Score: Another benefit of car finance is that it can help you build a better credit score, something which can be a challenge for some during financial difficulties. When you make regular payments on your HP car, it boosts your credit score and gives you access to better interest rates on other loans, should you need them. Should your financial situation change before the end of your HP contract, you also have the option with many dealers to pay off your vehicle early, although extra fees and charges may apply. 

Final notes

Times are tough for many homes right now, but drivers don’t need to give up on their dream of having a vehicle altogether. Car finance can be a great solution to keep costs down while still giving you access to a car, which is an essential item for many people in the UK whether it’s for staying in contact with loved ones, commuting to work or getting kids to school. 

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