Thanks to the political turmoil of this year and the economic fluctuations that followed, 2022 has been a wild 12 months in which to offer finance products. Whilst mortgages have been the most widely talked about, we in the industry know that of course, car finance is in the mix too. What a year it’s been!
It’s interesting to reflect back on how the base rate rises have come up to meet the increasing attraction of monthly payments to spread the cost of big buys. Our friends at Autotrader have been keeping a close eye on the trends that have emerged; we take a look at what they mean for our 67 Degrees dealer family…
How is car finance affected by interest rates?
Believe it or not, products such as HP and PCP are generally less affected by base rate rises as, say, cash loans or mortgages, providing you took it out back when the market was, how can we put it…more stable! Interest tends to be fixed throughout the term; it’s when new contracts are drawn up or existing ones reach the upgrade point (as is the case with PCP deals) that the base rate increase can be seen.
Of course, the value of a car generally differs greatly from that of a house, so the budget-breaking consequences that we see on the news are less of a ‘thing’ for those who pay monthly for their motor.
Still, with the cost of living crisis well underway and plenty in the news about interest rate rises, the country tightens its collective purse strings. So how has this affected used car dealers like ours?
How have interest rates affected the used car market?
If you’re on the forecourt helping your customers make their next car more affordable, there’s no denying that car finance rates have increased. This is despite car finance rates being generally higher with, therefore, more wiggle room to absorb the APR increases.
For used car dealers, the good news is that average used APRs have changed less in 2022 than for new cars. For example, Autotrader reports that for used car finance, the year started with an average APR of 9.2%, and has risen, as of November 2022, to 10.7%. For new cars, this is 5.1% compared to 7.7%, which is a little less of an attractive change to explain.
Obviously, rates across different lenders vary, and the above statistics are just an average, but still, it’s interesting to note that, in general, used car APR has remained relatively stable. It’s impressive considering the somewhat unprecedented economical situation this year.
How do customers feel about taking out car finance?
Whilst interest rate rises do make consumers take a little more note of the car finance small print, Autotrader is confident that finance uptake remains high. This is, in part, due to the cost of living crisis making the affordability of bigger investments, like cars, a little trickier, so the opportunity to break it down makes it easier to manage.
In fact, Autotrader reports a ‘5.4% year-on-year increase in finance interactions and a 15.5% year-on-year growth in finance leads’. Encouraging news for our industry!
How else can I secure the financial success of my dealership?
For us, the answer is simple; futureproof your business with an online forecourt that makes it easy for not only you to sell your cars, but for your customers to buy them; that includes the finance deal too!
Dealers with a 67 Degrees website have finance calculators built into the interface, making it easy to get a quote and secure the affordability of that next car. The rest of the site works to complement this, with clear calls to action leading them to the perfect deal for them, and a strong sense of brand throughout to make the decision to choose your dealership an easy one. It just makes sense!
Have a chat with us about how we can give your customers ALL the options in 2023, and skyrocket your business like a Bank of England base rate.