The PCP Car Finance Market: How Popular Is It?

The automotive market has witnessed a significant shift in consumer preferences regarding vehicle financing options in the last decade. Among the various choices available, Personal Contract Purchase (PCP) car finance has emerged as a widely preferred method for acquiring vehicles, particularly in the United Kingdom. With attractive features, flexibility, and affordability, PCP has revolutionised how people finance their dream automobile. But how big is it exactly?

Exploring the stats behind the PCP market

The statistics behind the PCP market provide valuable insights into its exponential growth and impact on car ownership trends.

Rapid rise in PCP adoption

PCP agreements have seen a remarkable surge in popularity, representing 53% of new cars bought on finance by personal consumers in 2009 and an impressive 76% in 2015. Now, the number is around 90%. This substantial increase boosted the share of car finance on all private new car sales to 86.6% in 2016 from a mere 45.8% in 2009.

Competitive interest rates

PCP agreements typically offer fixed Annual Percentage Rates (APR) ranging between 5% and 10%, making them an attractive financing option compared to Hire Purchase (HP) agreements, which often carry higher rates, usually between 10% and 15%.

Escalating vehicle prices and interest rates

The cost of PCP deals has been on the rise, primarily due to increasing vehicle prices and interest rates. Monthly finance payments for some new automobiles have escalated by a significant 40% within just three years, posing challenges for budget-conscious consumers.

Substantial increase in borrowing

Vehicle financing has experienced an astounding surge, with auto loans rising by an impressive 253% in just over a decade. The total amount borrowed on new and used cars combined reached nearly £39.6 billion in the last 12 months, compared to £11.2 billion in 2009.

Skyrocketing debt on new and used cars

Debt on new cars alone amounted to a staggering £17 billion last year, with an additional £22 billion tied up in used vehicles. The average amount financed per new car more than doubled between 2009 and 2022, soaring from under £12,000 to over £25,000. Similarly, the average amount financed per used car significantly rose from slightly under £9,000 to over £15,500 during the same period.

Wage disparity and rising debt

The substantial increase in vehicle finance debt contrasts sharply with wage growth. While wages have risen by 33% since 2009, the debt borrowed on new cars has more than doubled.

Monthly payments

Car buyers’ average monthly finance costs fall within the £150 to £400 range. Payments between £150 and £300 are the most common, accounting for 45.7% of respondents, while the £300-£400 bracket constitutes a fifth (20.9%) of the total.

Market performance and borrowing trends

Despite a 7% decrease in new purchases in 2022 compared to the previous year, total car finance borrowing reached nearly £40 billion, a £4 billion increase from 2021. More than 2.2 million customers opted for car finance agreements, marking a 3% increase from the previous year.

As the PCP car finance market continues to thrive, these statistics shed light on its widespread adoption and influence on the automotive industry. Consumers are increasingly drawn to the benefits of lower monthly payments and flexible end-of-term options, making PCP agreements a dominant force in the financing landscape.

The PCP scandal unveiled

Despite its widespread popularity, this type of financing has its controversies. The biggest one is the PCP scandal. The crisis revolves around the mis-selling of PCP agreements to unsuspecting consumers. Some dealerships and financial institutions have engaged in unethical practices, providing inaccurate or incomplete information to buyers during sales. As a result, many individuals have found themselves locked into unfavourable agreements, facing unexpected costs, and experiencing financial strain.

If you believe you have been a victim of the PCP scandal, it’s essential to protect your rights and seek compensation for any potential losses. Start by thoroughly reviewing your PCP agreement to understand the terms, interest rates, and any additional costs that may have been misrepresented.

Collect any supporting documentation, correspondence, or communications related to the purchase of your vehicle and the PCP agreement.

Seek advice from legal professionals from PCP Claim UK or consumer rights organisations specialising in financial mis-selling cases. They can assess your situation, guide you through the process, and help determine if you have a valid claim.

Lodge a formal complaint with the dealership or financial institution involved in the mis-selling. Ensure you keep a record of all communications and responses.

If your initial complaint is not resolved satisfactorily, escalate the matter to relevant regulatory authorities, such as the Financial Conduct Authority (FCA) or the Financial Ombudsman Service (FOS).

Take action now

In many cases, there are time limits for filing claims related to mis-selling. Delaying the process might lead to missed opportunities for compensation. By promptly addressing the issue, you can avoid further financial strain and mitigate any adverse impacts on your credit rating.

A proactive approach not only seeks justice for individuals affected but also helps prevent such misconduct in the future.