UK Used Car Finance Market Insight 2024
This report focuses on the UK market for secured consumer finance for used cars.
– Secured loans are defined as those where the ownership of the vehicle rests with the lender during the life of the agreement.
– Although most finance is arranged for consumers buying cars, the report also includes cars purchased for business use, usually by small businesses.
The report describes trends in the used car finance market over the period from 2015 to 2023, with forecasts to 2028. It includes:
– Overall used car sales and finance penetration rates, split between franchised dealers, independent dealers and other channels.
– The split of the market between 26 finance companies, with a profile for each showing their share of outstanding loan finance.
– The role of brokers, including firms working with vehicle dealers and those dealing directly with consumes.
– Drivers of changes in the market, including FCA regulation, used car prices and availability, and the wider economy.
Objectives of the report
This report aims to get behind the publicly available high-level numbers on the number and value of car finance agreements to provide insight into the size and characteristics of the diverse range of lenders within the market.
Key questions it answers include:
– What are the different ways in which used car finance is offered in the UK?
– What are the main types of used vehicle finance products?
– Who are the main finance companies and what are their channels to market?
– Who owns the finance companies in this market?
– What is the role of brokers in the market?
– What alternatives are there to secured loans for used vehicles?
– How have changes to regulation impacted the market, and do these explain why some leading firms have left the market?
– Which types of firms are gaining market share?
– Will new entrants disrupt the market?
The used car finance market
Our definition of the used car finance market covers all secured car credit.
This security comes from the hirer or lender owning the vehicle during the period of the finance agreement. At the end of the agreement, the customer may either have the option to purchase the car or will automatically take ownership of it.
We exclude any loans that are not secured on the vehicle in this way, including hire contracts and unsecured personal loans. Although personal loans may sometimes be marketed as car loans, the lender has no control over how the advance is used.
The main forms of secured vehicle finance are hire purchase arrangements (HP), lease purchase (LP) and personal contract plans (PCP).
There has been a significant shift over the last ten years towards secured car finance from unsecured loans. Secured finance is provided for around 30% of dealer used car sales, a much lower penetration rate than for new cars.
Regulation of the sector has tightened considerably since the FCA took over consumer credit from the Office of Fair Trading in 2014, with a further key change to rules for broker commissions taking effect in January 2021.
In January 2024, the FCA said it would review historical motor finance commission arrangements and sales across several firms. Analysts estimated that lenders could face bills of up to £13 billion as a result, although in our view, the most likely outcome from the FCA’s 2024 review review is unlikely to be this large.
There are four channels by which secured finance may be arranged for vehicles. Dealer finance is the largest of these, with a small but growing role for ‘secondary’ brokers who sit between dealers and finance companies.
We set out the trend in book size for each major market player in the Company Profiles section.
Our analysis suggests that the largest firm in the market, Black Horse (part of Lloyds Bank), has a market share of around 26%, down from 41% in 2015.
The top three firms had a combined market share of 44% in 2022, down from 70% in 2015.
Key market insights
Total new lending in 2023 is estimated at £22.2 billion, up slightly on previous years, reflecting higher used car prices offsetting lower volumes than seen prior to the pandemic.
Some of the largest bank-owned lenders have left the market or limited lending in recent years, resulting in a shift towards smaller non-bank lenders, whose average rates tend to be higher.
Our analysis of lender size, based on the review of the financial accounts of the largest firms, breaks the market into low cost providers with APRs up to 10% in February 2024, medium cost (APRs 10% to 30% at February 2024) and high cost (APRs above 30% at February 2024).
Since 2019 the low price sector has lost volume whilst higher cost lenders have grown relatively quickly.
We expect the value of new used car secured finance to grow from £22.2 billion in 2013 to £30.7 billion by 2028, as finance penetration rates recover to pre-pandemic levels, and used car prices increase due to more expensive cars entering the market, including electric vehicles.
Our forecast assumes that any compensation arrangements required by the FCA following its review of use of discretionary commissions will be limited to a small minority of potential cases. A more severe intervention seems likely to result in much lower, or no, growth in the market.
Who is the report intended for?
CCar loan providers
Firms providing services to car loan lenders, including software providers
Car finance brokers
Owners and investors in the industry
Advisors including consulting firms, investment banks, lawyers and accountants
Industry regulators and policymakers
What are the sources and methodology?
This report is based on
– Extensive research into published industry sources.
– In-depth analysis of the macroeconomic environment and relevant market drivers.
– Financial analysis of the accounts and other financial information of car finance market participants.
– Interviews with industry experts and particiants.
Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions
Forecasts are based on our market model which incorporates the key levers which drive the market and makes explicit assumptions regarding each, supported by evidence.