CAR LOAN DEBT UNDER SCRUTINY
Finance packages known as personal contract purchase plans are amongst the most popular forms of lending for the purchase of a new car. Around 86% of all new private car registrations use some form of credit, with purchase plans leading the market. Under these deals, drivers effectively pay an up-front fee and a monthly ‘rental’.
The amount borrowed annually to buy new private cars has trebled over the past eight years, reaching over £30bn last year. This rapid rise in car loans has given rise to concerns that this form of lending could, if left unchecked, lead to the next financial crisis. High levels of personal debt could put household budgets under pressure if interest rates or unemployment were to rise.
The Bank of England has expressed its concerns, and the Financial Conduct Authority is carrying out a review. A House of Lords committee has called for stronger controls on ‘rent to own’ deals. Drivers looking for car finance can in future expect to face tougher affordability checks
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