£5 Billion Worth of Automobiles Paid by Financing In March 2017

A variety of financing options were utilised to buy approximately 120,000 used cars, and 200,000 new, to the tune of just over £5 billion in March 2017.  The total value of the new cars exceeded 13 percent more than in March 2016, coming in at £3.6 billion, establishing a high new record.  The prevailing wisdom is that many consumers decided to obtain new cars in order to register them to not be assessed taxes that would make vehicles costlier to possess.  Those taxes came into effect during the first part of April 2017.

Released as part of the 2015 Summer Budget, modifications to the Vehicle Excise Duty (VED) were designed to be a portion of the plan to have fewer emissions of carbon from motorised vehicles. In the past, vehicles with fewer emissions, particularly the environmentally friendly low emission and hybrids, were not included in the VED assessments.  Only zero emissions automobiles have an exemption under the new plan now, with these including totally electric vehicles or those operating on hydrogen.

Those buying all other autos will pay in a range of £10 to £2,000 during that first year of registration, with this being dependent on CO2 emissions in g/km2s.  After that, any car that is valued at less than £40,000 has a £140 annual fee.  But for those automobiles with a value above that, there will be an additional assessment of £310 ranging from two to six years.

Because these assessment changes are only applicable to autos that are registered on or after April 1, 2017, it is clear that any buyer who made and registered their purchases in March 2017 realised a great deal of savings.

As far as car financing figures were concerned, even with the sales spike due to VED changes that were coming up, 2016 financing levels were still high, with a total worth of £32.5 billion across new and used cars.  This marked a nearly 10 percent increase compared to 2015.

With some worry being expressed about high levels of financing occurring, the focus has rested on the Personal Contract Purchases (PCPs).  The way it works is that a buyer deposits about 10% of an auto’s value, and then the rest of the total is lent to the buyer and it must be paid, including interest, within a set time.  It is at that point the consumer you’ll be given the opportunity to purchase the car outright for an amount that was pre-arranged.  This fee is called the guaranteed minimum future value (GMFV).  Or, the customer can return the vehicle to the dealer.  If there is a gap between the GMFV and the car’s worth, the difference can be used as some or all of a new PCP purchase deposit.

If you decide to stop your PCP early, the true worth of the car vis a vis what you still owe would need to be paid.  Let’s say that if a customer decides to transact the deal when the vehicle is valued at, say, £9,500, with the GMFV set at £11,500, an extra £2,000 would have to be paid in order to vacate the plan early.

Diesel cars, especially, are a portion of the concern because of the boost in PCPs and that is due to depreciation.  Because the government, due to newly found toxic and environmental issues with respect to diesel, has begun on an escalating basis to clamp down, cars that run on diesel are going to likely decrease in worth significantly.  Some are guessing that the typical diesel auto will plummet in value down to 15% a year, possibly sticking owners with equity in the minus column and stranding them with a lot of money that would have to be spent should they vacate their plan sooner rather than the full term of the deal.

Having said that, if the driver keeps the deal until its contracted end, the dealership or the maker of the vehicle would lose due to the fact that the GMFV price is guaranteed.

The individual in charge of the Money Advice Trust (MAT), Joanna Elson, tells buyers to be certain they can continue their monthly obligation for payment when weighing the pros and cons of a PCP.

She said, “for many consumers [car finance deals offer] access to a car that would otherwise be unaffordable, however it is important that the affordability of offers is fully assessed and that consumers are clear on the terms so that they know from the outset what they are committing to, and can plan accordingly.”

Adrian Dally, who the heads the Finance and Leasing Association (FLA), believes that this form of lending is “responsible,” with it being, as he told the BBC, “a sustainable model going forward.”