The United Kingdom car loan market has shown remarkable growth, reflecting the rising demand for vehicle financing amidst economic challenges. As of 2023, the market size reached approximately USD 62.48 billion, and projections indicate a robust growth trajectory with a compound annual growth rate (CAGR) of 6.4% from 2024 to 2032, aiming for a market value of around USD 109.20 billion by 2032.

Key Takeaways

• In 2021, 2.1 million cars were financed by all existing loan providers in the UK.
• The average amount spent by British consumers on new car purchases was £25,000.
• Automotive financing companies suggested that car loan financing could be used to purchase £23 billion worth of used vehicles in 2023.

Understanding Car Loans

Car loans are financial products offered by banks and government institutions that enable consumers to purchase vehicles without paying the full price upfront. Instead, consumers pay the principal amount along with interest in periodic installments, gaining ownership rights upon full payment.

United Kingdom Car Loan Market Drivers

Rising Prices of Used Vehicles

The increasing prices of second-hand vehicles are a significant driver of the UK car loan market. As new car prices surge due to inflation and supply chain disruptions, more consumers turn to used cars, fueling demand for financing options.

Launch of New Vehicles

The frequent introduction of new vehicle models by manufacturers stimulates market demand. With each new launch, consumers are enticed to upgrade, often requiring financial assistance through car loans.

Inflation and Consumer Savings

With rising inflation, banks are encouraging consumer savings by offering straightforward loan terms, thus boosting market development. Simple and transparent loan conditions attract more borrowers, supporting market growth.

Key Trends and Developments

Several trends are shaping the United Kingdom car loan market:

Preference for Used Vehicles

British consumers, particularly the younger population (aged 18-24), are three times more likely to purchase used cars over new ones. This trend is driven by economic considerations and the increasing reliability of used vehicles.

Multiple Financing Options

British consumers have access to various car loan financing options, including hire purchase agreements, personal loans, and guarantor loans. This diversity allows borrowers to choose the most suitable option for their financial situation.

Shift Towards Four-Wheelers

A significant number of British motorcyclists and bike owners are planning to switch to four-wheelers. This transition is expected to drive demand for car loans, as more individuals seek financial assistance for vehicle purchases.

Online Loan Payments

The convenience and flexibility of online loan payments are boosting market growth. Consumers can easily manage their loan payments through digital platforms, enhancing the overall borrowing experience.

Recent Market Developments

• Jan 16, 2024: London-based D2C car finance platform, Carmoola, raised £15.5 million in equity investment to revolutionize the UK car finance market.
• Sept. 25, 2023: Fitch Solutions reported that vehicle demand in the UK would remain robust through 2024.
• Jan 23, 2023: Metro Bank launched a digital car loan product under its RateSetter brand to offer an end-to-end digital experience to brokers and borrowers.
• Sept. 30, 2022: Lloyds Bank plc provided a £1 million loan to Lex Autolease and Black Horse for manufacturing electric vehicles.

United Kingdom Car Loan Market Segmentation

The United Kingdom car loan market is segmented based on vehicle type, ownership, loan provider, and end user.

Vehicle Type

• Passenger Vehicle
• Commercial Vehicle

Ownership

• New Vehicle
• Used Vehicle

Loan Provider

• Banks
• OEMs (Original Equipment Manufacturers)
• NBFCs (Non-Banking Financial Companies)

End User

• Individual
• Enterprise

Individuals Dominating the Market

Individuals are expected to dominate the UK car loan market share in the coming years. The younger population is inclined towards purchasing used and inexpensive cars, particularly those older than five years. Additionally, motorcyclists and bike riders are transitioning to four-wheelers, further driving market expansion.

Commercial Vehicle Financing

The UK’s attractiveness as a business destination and the growth of its warehousing and logistics industry are expected to boost demand for commercial vehicle financing. This sector is likely to witness significant growth as enterprises seek financial support for vehicle acquisitions.

Competitive Landscape

Major players in the UK car loan market are focusing on fair and transparent terms for loan seekers. Key players include:

• Barclays PLC: Established in 1690, headquartered in London, offers consumer banking, corporate banking, and investment banking services.
• BNP Paribas S.A.: Established in 2000, headquartered in Paris, offers retail banking and corporate institutional banking services.
• Santander UK plc: Established in 1988, headquartered in London, offers retail banking and corporate/commercial banking services.
• Lloyds Bank plc: Established in 1765, headquartered in London, provides a wide range of financial services for commercial and retail consumers.

Other notable players include Bayerische Motoren Werke AG (ALPHERA Financial Services), JBR Capital Ltd., Close Brothers Group plc, Tandem Bank Limited, Royal Bank of Scotland plc, and Nationwide Building Society.

United Kingdom Car Loan Market Trends

Personal Contract Purchase and Hire

Personal contract purchase (PCP) and personal contract hire (PCH) are popular car loan financing options among British consumers. The demand for car leasing reached a value of £2.33 billion in 2022, with a year-on-year growth of 28% from November 2021, according to the Financing and Leasing Association of the UK. The rising popularity of car leasing is expected to contribute to market growth.

Digital Banking Services

The proliferation of digital banking services has significantly impacted car loan financing in the UK. Consumers can access information about car policies, interest rates, and installment sizes online, facilitating informed decision-making. The convenience and speed of online payments also positively influence market demand.

Future Outlook

The United Kingdom car loan market is poised for significant growth over the forecast period. With rising vehicle prices and economic challenges, the demand for car loans is expected to remain strong. Key trends such as the preference for used vehicles, the availability of diverse financing options, the shift towards four-wheelers, and the convenience of online loan payments will continue to shape the market.

The UK car loan market is set to expand, driven by consumer demand for flexible financing options amidst economic uncertainties. As major players innovate and digital services enhance the borrowing experience, the market is expected to witness robust growth, reaching new heights by 2032.