UK car finance deal costs soar up to 40% in just three years

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Soaring interest rates and list prices push up cost of PCP deals across popular models as UK inflation hits 41-year high

The cost of car finance has soared by up to 40% in the last three years, new figures have revealed.

Monthly payments on PCP (personal contract purchase) packages for popular models have jumped by a minimum of 22% since 2019, according to WhatCar? as the market feels the impact of inflation, with asking prices and interest rates climbing.

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The consumer title took a sample of five popular models which are on sale in the same guise now as they were in 2019 and compared the list price and PCP deals to measure how costs have changed. It found that all five -  Ford Puma, Mini hatchback, Seat Ateca, Volkswagen Golf and Volvo XC40 - had risen in cost, whether buyers were paying cash or taking out finance.

The list price increases ranged from 11% on the Seat Ateca to 27% on the Mini and Volvo, while average interest rates also rose across all models. The Mini saw the smallest increase in average APR, at 48%, while the Puma saw a staggering 308% increase from an average of just 1.2% to 4.9%. The Volvo saw the largest overall monthly increase, rising 42.5% between 2019 and 2022.

More than 90% of new car purchases are made using some form of finance and in recent years PCP deals have become the most common means of financing a new vehicle. Car finance debt has quadrupled since 2009 and industry experts recently warned that the the industry was at risk of ‘imploding’ as the cost of living crisis leaves families struggling to keep up with payments.

What Car? editor Steve Huntingford said: “PCP finance is the most popular choice for new car buyers, but the differences between the offers available today show the importance in doing your research to compare deals and consider other options such as bank loans when financing a vehicle.”

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The car market has been hit hard by the global shortage of semiconductors and the rising cost of materials and production, pushing up the price of cars. It is also vulnerable to the rising interest rates that are affecting every aspect of daily life and leading to more expensive finance deals.

The new data shows that in 2019 all five cars studied were cheaper to buy on finance than by cash but that trend has reversed and all five are now cheaper for cash buyers. However, the research did find some new cars remain cheaper to buy on finance, thanks to manufacturer finance contributions and low interest rates. Models including selected versions of the Toyota C-HR, BMW 5 Series and Ford EcoSport are all still cheaper to finance than buy outright.

Mr Huntingford added: “The car industry is not immune to the challenges of Covid, semiconductor shortages and now energy price increases, and they have combined to cause a significant amount of turmoil in the new car market. However, the price rises are not universal, nor always applicable to finance and cash purchases, so it’s still possible to get a tempting deal if you shop around.”

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