Car buyers confused by finance options

Nearly one-in-five new car buyers are left confused by the various finance options available to them, despite finance accounting for 72% of all private car purchases.

This is according to market intelligence from What Car?’s new car buying platform.

Analysis of What Car?’s in-market audience found 18.8% admit they do not know the difference between a Personal Contract Purchase (PCP) and a conventional Hire Purchase (HP) agreement. With more than one million privately purchased new cars registered in the UK last year, that equates to nearly 200,000 motorists annually for the market.

The findings come at a time of record-high discounts on new car finance deals. What Car?’s Target Price mystery shoppers found the average discount on a new vehicle bought on finance at the beginning of May this year was £3,670 – or £1,075 more than the average cash offer on a new model. The average deposit contribution from dealers at the end of May stood at £1,619.

While buyers struggle to differentiate between the various finance options, they are most concerned by the amount of interest charges on their agreement. What Car?’s research found 54.1% of respondents said they were most concerned about interest rates, with 37.5% most concerned about the size of their monthly repayment.

Such focus on interest rates may partly explain why manufacturers have increased the number of zero per cent interest rate finance offers in the past 12 months by a third. Since May 2018, the number of zero percent finance offers has risen by 32%, with more than 840 make, model and trim configurations across the UK car market now available with interest-free credit. 

Steve Huntingford, editor of What Car?, said, ‘Dealers that take their time with customers, explaining the various finance options available to them, and work with the customer to bring interest fees as low as possible, will clearly do well based on our research.

‘There are great deals available for buyers, especially with zero percent interest finance. Combined with a deposit contribution and discount from the dealer it will often mean the car will be cheaper to purchase on finance than with cash. Communicating this to buyers is vital for dealers.’