Paying up front for a new vehicle has continued to slow down, according to research from the Britain Under the Bonnet report from Close Brothers Motor Finance. Just under half (49%) of car buyers intend on paying upfront for their next vehicle, down from 57% on the year before.
The shift to subscription models for TV and music to food shops and beauty products is trickling down to the motor industry as two in five (40%) opt for car finance. Of those who intend on using finance towards their next vehicle, 13% say they prefer this method of payment it as allows them to spread the cost, for 10% it allows them to afford the model they want to buy, and 9% say it means they can purchase a relatively new vehicle model. 8% would prefer to lease their next car.
With consumer confidence low, and the future remaining unclear, it’s near impossible to predict how Covid-19 will impact customer buying behaviour in the months ahead. And, further research found that car dealers believe that the appetite for finance will be far higher in 2021, with 71% believing consumers will opt for this versus paying upfront (27%).
The findings come as latest figures show the new car market accelerated 19% by value and 9% by volume, while the used car market grew 18% by value and 9% by volume in July 2020 compared with the same month last year. And in 2019 the new car market was worth more than £19.6bn, with finance accounting for almost 92% of private new car purchases. Similarly, in the used market, the value of finance advances rose by 4%, topping £18.37 million during 2019.
The report found that young people are less likely to be worried about the price of the car because more are keen to use finance, rather than paying in full, before driving the car off the forecourt. In fact, half (50%) of young drivers (17-24) would prefer to use finance on their next vehicle purchase, giving them the freedom to spread their payments and afford the new models they most desire.
However, this trend switches direction as people get older. Whereby only 18% of those 55+ would use finance to buy their next car, with 60% keen to pay upfront – down from 64% last year.
The research also revealed further differences between men and women. Far more men, despite being in a relationship, said they make the bulk of the decisions alone when it comes to purchasing a car. Of which, 67% said they made the budget decision, 69% decided on car specs, and 70% decided on the finance option. A whopping 74% said they negotiated the deal alone. And just 5% of men said the partner made the bulk of the decision making.
Seán Kemple, Managing Director at Close Brothers Motor Finance commented: “This shift to finance is so core that for the first time in our research the number of people who want to pay for their car upfront has fallen below 50%. And this could be far higher as we approached 2021. For young people especially, this prompted a shift away from ownership and towards subscription models, or at least models with regular cost instalments rather than single payments.
“We’re now living in a world of monthly subscriptions for almost everything, from mobile phones to make up to food, meaning we can chop and change at the drop of a hat and only pay for what we use. This is now the norm for a whole generation coming through the market who are used to being able to upgrade and adapt to suit their needs, and the motor industry is by no means exempt. As we adapt to a changing world, dealers need to keep a close eye on the latest developments in this field, as customers will rely on them as a source of knowledge.”
