Soaring prices for new and used engines, factory delays and rising interest rates on loans are pushing the country to the brink of an auto crisis.
Now experts fear that many are falling behind in loan repayments due to the cost of living squeeze.
Used car prices have risen for 29 consecutive months, and they now cost an average of 30% more than before the pandemic.
A used Peugeot 107, for example, now costs an average of £3,652, up from £2,550 a year ago, according to Auto Trader.
Meanwhile, new car prices have risen 26% as manufacturing delays lead to long waiting lists.
There’s a wait of 41 weeks for a new VW Golf or 36 weeks for a Nissan Micra, reports carwow.co.uk.
Rising interest rates further drive up costs for buyers who depend on financing.
Adrian Dally of the Finance & Leasing Association says: “There is a cost of living crisis and ultimately there will be people who will struggle.
PRICE FLASH MEANS LARGER DEBTS
Buyers are already taking out larger loans to secure the vehicles they need.
The average loan for a used car has risen from £7,500 two years ago to £8,700 today.
Lucy Sherliker, of lender Zuto, says: “Clients are borrowing an average of £1,200 more than two years ago.”
She added that many people are opting for used cars rather than waiting for new ones, driving up prices and increasing the amount of money borrowed.
Interest rates on auto loans have already started to climb, so new borrowers are having to pay more, and Adrian Dally says that’s likely to continue.
WHAT TO DO IF YOU HAVE DIFFICULTIES WITH PAYMENTS
Nine in ten new cars in the UK are bought on finance, while more than four in ten used car buyers take out loans.
This means many drivers have ongoing monthly costs, and debt counselor Sara Williams, founder of the Debt Camel assistance website, says many find the payments “difficult to manage”.
One option, she says, is to return the car – known as “voluntary termination”.
But even if you do, you may still owe money if you’ve repaid less than half of the loan.
And if you miss any refunds, your car can be repossessed.
Sara suggests talking to a debt counselor if you’re having trouble, especially if you depend on your car for work, mobility, or family responsibilities.
She says that in some cases, it might be better to agree to a payment plan on credit cards or other unsecured debt to help you pay off your car loan and keep your vehicle.
Sue Anderson, from debt charity StepChange, says your rights will vary when you’re struggling to afford car finance, depending on the type of loan you have.
When you buy a car on hire purchase, it belongs to the lender until you have made all the agreed payments.
She says, “That means you’re not allowed to sell it. You should contact your lender as soon as possible to let them know you are having difficulty paying, as you may be able to arrange a payment holiday or negotiate a more affordable payment plan.
On the rise
- A used car costs on average 30% more than before the pandemic
- The average car loan is now £8,700 from £7,500 in 2020
If you have good credit, you may be able to buy a used car with an interest-free credit card and pay in installments before the rate goes up.
If a dealership lets you buy with a credit card, you could sue the lender if the car turns out to be defective.
This could be useful if the dealership goes bankrupt or refuses to assume its responsibilities.
WHAT’S NEXT FOR CAR PRICES?
There is little prospect of respite from rising car prices, as demand for new and used engines still outstrips supply.
The average price of a used car in August was £17,039, and Auto Trader chief data officer Richard Walker says there are no signs of it slowing down.
Even though there is a cost of living crisis, more than three-quarters of people who responded to a recent Auto Trader survey said buying a car was a necessity rather than a luxury, suggesting that demand is unlikely to decline.
But there is light at the end of the tunnel: the number of cars built in the UK has increased for the third consecutive month.
But competition among used car buyers is expected to remain strong, which means used car prices are expected to remain high.
Walker said, “We remain confident that consumer demand will continue.
Coupled with ongoing supply challenges in the new and used car market [mean that] prices will remain high for the foreseeable future.
“THE MARKET IS JUST BONKERS”
WEDDING photographer Amber Leach relies on her car to get to venues across the country with all her gear.
The 40-year-old lives in Plymouth with husband Jesse, 36, a life coach, and children Ruah, two, Thomas, nine, and Libby, 13.
For Amber, renting a car through her photography business, Liberty Pearl, was the obvious solution – and she managed to close the deal on a three-year deal just in time, before prices hit. don’t fly away.
She says: “This is my third lease car, as I need a very reliable vehicle to travel to weddings all over the country.
“I also need him to be really smart because I drive the bride and groom to places.
“We started looking in January, but there was a real shortage of new cars because of Covid.
“We couldn’t get a used one because you can’t rent them through a company. We had been looking for months.
Eventually, she struck a deal on a new electric Hyundai Tucson, which had already been loaded onto a ship for delivery, but the buyer canceled their order at the last minute.
Amber was able to get a three-year lease on it.
But when the car arrived four weeks later, she tried to extend the lease to five years.
It was then that she discovered that prices had skyrocketed.
She says: “I was told that if I got a new contract with a five year lease it would cost me £100 more each month for the same car as it had increased so much during that time.
“So we stuck to the deal we already had.”
She pays £360 a month for the car, plus VAT, and said: “An extra £100 would have been a significant difference.
“The auto market is just crazy right now.”
“WE WANT AN ELECTRIC CAR, BUT WE CANNOT AFFORD IT”
WITH four children to carry, Vicky and Chris Saynor have considered replacing their diesel Land Rover Discovery with an electric car to cut fuel costs, but can’t afford the asking price.
The couple, both 46, from Cottered, Herts, run holiday cottage rentals together through their company Bethnal & Bec, and live with children Poppy, 17, Felix, 14, Mylo , 12 years old and Willow, one year old.
Vicky says of her current vehicle: “It’s a real gas guzzler, and it’s now reached a point where we can never fully fill our tank again because fuel is so expensive.”
But since the couple became interested in electric cars earlier this year, prices have skyrocketed.
They were hoping to pay between £370 and £400 a month for an electric Mini Cooper.
But by the time they looked again the cost was over £600.
Vicky adds, “We can’t believe how much the costs have gone up. It’s really disappointing.
The couple have now put off switching cars until it becomes cheaper.