During 2013, the point-of-sale car finance market posted strong growth. In value terms the market grew by 24% year on year to reach more than £20 billion, and in volume terms it increased by 18% to 1.71 million plans. The car finance market is directly linked to conditions in both the wider consumer credit industry and the car sales market. Clearly, with fewer sales to fund, car finance providers’ performances will suffer in periods of weak car sales. Since 2012, the number of cars being sold has increased significantly, with the car finance market reaping the rewards of this with highly impressive growth in both volume and value in the last two years.

This report examines the car finance market, including discussion of recent changes in the industry. The size of the point-of-sale car finance market is analysed and a five-year forecast for the volume and value of new point-of-sale advances is provided. The sector’s major players are examined, along with notable product developments. Mintel’s specially commissioned consumer research provides insight into car finance ownership, where these plans were arranged, and how long ago consumers arranged their most recent car finance product. The types of research conducted prior to arranging a credit product are analysed, as well as attitudes towards car finance and car finance providers.

Report scope

This report focusses mainly on point-of-sale car finance, which includes hire purchase (HP), personal contract purchase (PCP) and lease purchase plans. Because of the close competition between these products and other consumer credit providers, specialist car loans and personal loans are also discussed in parts of the report.

Hire purchase

A hire purchase agreement involves the car buyer paying an initial up-front deposit for their chosen car (usually starting at 10%), before making fixed monthly payments over a repayment term that is generally between one and five years.

Once the fixed monthly payments have all been made, the ownership of the car is transferred to the buyer.

Personal contract purchase

A PCP plan, similar to HP, starts with the payment of a 10%+ deposit, followed by fixed monthly payments over a typical term of two to four years.

At the end of the repayment period, the buyer has the option to pay a final ‘balloon’ payment, known as the minimum guaranteed future value (MGFV) to keep and own the car, return the car, or use the car as part-exchange for the car in return for a new one. For the latter option, the dealer pays the MGFV, with any surplus put towards the deposit for the replacement vehicle.

Lease purchase

Lease purchases work similarly to PCPs, with a deposit (usually equivalent to between three and six months’ rental) and monthly payments over two to four years.

The differences between PCP and lease purchases are that, as the name suggests, lease purchases do not include the provision to own the car at the end. As a result, monthly payments can be much lower than HP or PCP plans. However, the MGFV payment must be made in a lease purchase. This means that if the car has depreciated more than anticipated, and the car does not cover the MGFV, the consumer must cover any residual balance.

Abbreviations

APR Annual Percentage Rate
FCE Ford Credit Europe
FLA Finance and Leasing Association
FCA Financial Conduct Authority
FHBR Finance House Base Rate
HP Hire Purchase
JGFR John Gilbert Financial Research
LIBOR London Interbank Offered Rate
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