Some 400,000 people intend to use car finance to buy a new vehicle in the next 12 months.

In 2000 the car finance market was worth £11 billion - has increased confidence in the economy encouraged consumers to buy high-value goods such as new cars?

Does the personal loan market give potential car-buyers a real low-cost alternative?

This report examines the UK market for car finance products. Demand for finance to fund car purchases has fluctuated, as the profile of the new and used-car sector has altered over the last 24 months. The decline in both new and used car prices, and the continuing favourable economic situation, will have convinced many consumers that taking out a car finance agreement is a manageable additional expense.

Car sales are now increasing again following Government intervention in the pricing of new cars and deflation in used car prices. As such, more consumers are being exposed to the option of car finance. The changing face of car retailing is being reflected in the variety of finance products on the market and the number of new players targeting this particular sector. There are four main types of car finance: personal loan; hire-purchase; leasing and personal contract purchase (PCP), although deferred payment loans and flexible mortgages are increasingly being promoted as alternatives methods of financing a car purchase.

Car finance providers are having to compete with other mainstream products to entice consumers to use credit to fund the purchase of a car. The robust personal loan market gives potential car buyers a relatively low-cost alternative to signing up to a specialised credit agreement. PCP schemes have suffered some adverse publicity as falling used car prices have meant that, at the end of the nominated period, the vehicle's minimum guaranteed future value (MGFV) is often more than the value of the car. In this environment, competition in this sector has increased, with car manufacturers taking their finance operations in-house to compete with the independent finance houses and new entrants.

Other Mintel reports of relevance to this market include:

Travel Insurance, Finance Intelligence, April 2001

The UK Car Market, Market Intelligence, September 2000

Car Retailing, Retail Intelligence, March 2000

Motor Insurance, Finance Intelligence, June 2001