Why Now Might Be a Great Time to Consider Car Finance in the UK

11th September 2024

The phrase “timing is everything” is perhaps about to ring true for many, especially when it comes to major financial decisions such as making major purchases like a house purchase or replacing your car. If you’ve been considering financing a new or used car in the UK, now could be an opportune moment to make that move. With interest rates beginning to fall and used car prices experiencing a dip, there are some compelling reasons to explore taking out car finance options sooner rather than later.

Falling Interest Rates: A Window of Opportunity?

One of the most significant factors making prestige car finance slightly more attractive right now is the recent fall in UK interest rates. The Bank of England has started to reduce the bank base rate after a period of consistent hikes that were aimed at curbing inflation. The recent 0.25% reduction might only be small, but it has nonetheless created a more favourable environment for borrowing, including taking out prestige car finance.

Put simply, lower interest rates mean lower monthly payments, making it easier for potential car buyers to manage their budgets. Even a slight decrease in interest rates can result in significant savings over the life of a car finance agreement. What is also interesting is that whilst the Bank of England base rate has only fallen a modest 0.25% thus far, the prevailing interest rates applicable to used car finance have fallen much further.

The Fast Car Finance team have seen car finance rates reduced by some of our lenders from a high of around 12% APR earlier in the year to between 9.5% and 10% APR as we enter September (NB – these APRs are typically on loans arranged on balances over £50,000). As an example, a reduction of 2% on the APR on a five-year fixed rate Hire Purchase car loan could save you thousands of pounds in interest charges. A quick calculation suggests a £50,000 loan is now working out £50 PCM cheaper than earlier in the year. A £50 PCM reduction over 60 months equates to £3,000 as an example.

Decreased Car Prices: More Value for Your Money?

Simultaneously, many desirable sports car marques such as Aston Martin, Ferrari and Porsche have seen a noticeable reduction in second-hand prices across many UK dealer forecourts. During the pandemic, car prices surged due to supply chain disruptions and increased demand for personal vehicles. However, as the market has stabilised and new car supply chains improve, prices are beginning to return to more sensible levels. As some car enthusiasts also feel the pinch of increased mortgage payments and higher utility bills, for some this has meant that “second/weekend” cars have been sold to reduce outgoings, which in turn creates a fall in used car asking prices. Price drops of £10,000 to £15,000 across the bonnet of some high-end prestige models have been seen, representing an opportunity to “buy on the dip” for canny car buyers.

This drop in car prices means that many buyers are now able to get more value for their money. Whether you’re looking at a brand-new model or a well-maintained used vehicle, the cost savings can be substantial. When combined with lower interest rates, the total cost of purchasing a car via finance could be considerably less than it would have been just a year ago. Not only have interest rates fallen but so too has the price of the car.

Improved Financing Terms

Lenders are also responding to these market changes by offering more competitive new and used car finance offers. With the combination of lower interest rates and falling car prices, lenders are keen to attract customers by offering more favourable terms, which is not dissimilar to how the UK mortgage market operates. This could include longer repayment periods, lower deposit requirements, or attractive residual value (balloon) payments on certain models.

We continue to see strong residual values being offered on desirable two-door Porsche models, with residual values of 60-70% achievable depending on model and mileage. The same can be said for other brands where production runs were limited and or supply reduced into the UK market when supplied new. These improved terms can significantly enhance affordability, making it easier for more people to access the car they need without straining their finances.

The Economic Outlook: Seizing the Moment

While the current economic outlook remains uncertain, with fluctuating inflation rates and potential future interest rate adjustments, the present offers a better opportunity for those looking to arrange used car finance than at this time last year. The combination of lower borrowing costs and reduced vehicle prices creates a perfect storm for savvy buyers. Inflation is currently forecast to rise above 2% again later in 2024, in part due to energy price rises and continued concerns around wage growth. While the long-term view is that the UK bank base rate will fall to between 3.5% and 4%, interest rates will remain “higher for longer” as the Bank of England has often stated publicly.

Conclusion: A Smart Move for Car Buyers

In conclusion, the convergence of falling interest rates, decreasing car prices, and improved financing offers presents an opportunity for UK car buyers right now. Whether you’re in the market for a sports or performance car for weekend use or considering upgrading your daily driver, now could be the perfect time to explore your finance options.

Fast Car Finance has been arranging finance for new and used cars for nearly 20 years and we have access to a wide range of lenders, who offer fast and flexible car finance options.