Car finance is a great way to stretch your budget, instead of looking at run of the mill cars you can purchase something up market like a BMW or Mercedes. Kwik Fit have run the numbers, and a recent study shows that Brits are now spending over £1 billion a month on car finance alone.
Delving into the numbers and it turns out that 4.7 million motorists are currently paying monthly for their cars, that’s either on PCP or some other form of lease. On average the monthly payment across the UK comes in at £226.12, but that can vary widely by area.
Scotland has the lowest monthly car finance expenditure, coming in at just £188.36, whilst Londoners (no surprise) are the second most profligate forking out £269.01 a month.
Other areas which are high include the North West at £226.94, South West £253.69, Eastern £229.61 but the most lavish spending is saved for the South East though, they pay out a whopping £271.63 a month.
Further math shows drivers who purchased their car outright spent on average £10,511, whilst those that finance were able to spend £15,438. That’s 47% more, showing that you can pretty much double your budget in most cases.
Those figures take into account both new and used purchases, also bringing to light the fact that Londoners pay around £1,000 more than drivers in Yorkshire when buying a car. The national average is £11,170, London pays £13,814 and even though the South West figures high on the finance payments they actually spend the lowest on a car purchase, averaging just £9,624.
Add all the monthly finance together and the total comes out at £1,072,713,280. Over a year that equates to around £12.9 billion. Now that’s a big number.
All of these figures were gathered by a representative sample of 2006 adults across the country, so they’re just a best guess, but they still show the benefits car finance can bring.
Let’s take a look at an example, borrowing £20,000 at a rate of 3.2% on a personal loan works out at £583.33 for three years. The whole amount will be paid back in that time, but that monthly fee is rather high.
If we now take a look at finance on a £28,000 Audi TT the monthly payments over 36 months work out at just £323.88 a month. A loan of the equivalent amount would be well over the £800 mark. Now, you will need a deposit of £2,885, and at the end there will be a £14,178 lump sum to pay if you want to keep the car. You’re unlikely to do that though, most hand the car back and start a new process.
PCP on the above example means you’re only paying for half of the car over the three years of use. There will be penalties if you go over the 10,000 mile yearly limit, the same goes for any damage you cause whilst it’s under your custodianship. Just make sure you look after it and you’ll be fine.
If you’re already in a PCP arrangement you can use our handy settlement calculator, this will work out if you’re in positive equity or not. If you are then you’ll be able to switch to a new motor no problem, if not then you’ll need to have a chat with the finance provider to see what can be done about the negative equity.
Most importantly make sure you’ve budgeted and can actually afford the monthly repayments as well as the deposit. The last thing you want is to have your motor taken away on a low loader.