Car finance – What’s next for interest rates?

As we ended 2023, used cars prices had started to fall and interest rates are following in the same direction?

So, what is going on in the used car market?

Firstly, the supply side shortages on new vehicles that were a result of COVID have eased considerably. This has had a knock-on effect on used car prices and consequently prices have eased as dealers start to discount stock. Prices on some luxury marques have dropped, Range Rover models being just one example of this

Secondly, the Bank of England base rate sat below 1% from March 2009 until June 2022 when it crept up to 1.25%. Since that date and with inflation rising quickly and still significantly over the Bank of England’s target, base rate (as at today) is 5.25%. This has directly impacted the fixed rates of interest in respect of new and used car finance. In summary, the cost of borrowing money to purchase a car have gone up by broadly 5%

Is there any good news for car buyers?

Yes, there is. We are currently seeing a number of car finance providers on our panel reduce their interest rates.

Why is this?

In simple terms, the headline rate of inflation is falling (this means the price of goods and services is rising but at closer to the target rate set by the bank of England). This in turns gives the financial markets a little more confidence, in turn that causes fixed rates of interest to fall.

How much have rates reduced by?

Bank base rate itself remains at 5.25% but fixed rates of interest (which apply to car finance) have reduced by around 1.5% since their peak last summer. Where the typical APR on a £50,000 car loan was circa 12%, we are now seeing rates closer to 10.5%

What does that mean if I am looking to change my car soon?

The price you pay for a used car now is likely to be less than the equivalent car would have been in 2022/2023. Added to this, the cost of borrowing money is currently a little lower than it would have been for most of 2023. However, the days of securing used car finance at 6.9% APR are still a distant memory and are unlikely to return any time soon.

If you are considering purchasing a new or used car soon, then please contact the team here at fast car finance. We offer honest, impartial, and straightforward advice that is easy to understand.