29th July 2024

The Future of Car Finance In The UK – Trends and Predictions

The Current Car Finance Market in the UK

Today, the car finance market is going through a period of transformation. More than ever, finance providers are focusing on customisation, online sales and marketing techniques, and the advancements of digital tools to improve the customer journey.

In this article, we’ll explore how the history of car finance has shaped the present and how technology and the wider world will shape its future. Exploring key trends, predictions, and more, let’s dive in with a quick history lesson.

Historic Milestones of Car Finance

Automobiles were introduced onto British roads in the early 20th century and financing became prominent in the 1920s to encourage car sales. With small down payments and flexible monthly repayments, the experiment was a success and led to more finance deals, more sales, and more people able to buy a new car outright.

The First Hire Purchase Agreements

In the 1930s, the hire purchase system was properly adopted by the automotive industry, allowing buyers to drive a new car immediately. All they needed was a deposit and to sign an agreement guaranteeing a series of regular, fixed monthly repayments to the lender. This continued until Europe was plunged into war and the economy changed completely for over a decade.

Car Finance After the Second World War

In the aftermath of the war, car usage grew exponentially and in the 50s and 60s, personal loan options for cars were introduced by banks, credit unions, and financial institutions.

This trend continued into the 1970s when leasing became even more popular, which allowed people to drive a car without owning it outright. They could return the vehicle at the end or pay the full purchase price or outstanding finance at the end of the term and keep it, which is similar to the model used in the years that followed.

Car Finance Today

Businesses and individuals found leasing and car finance beneficial in the 20th century and would frequently upgrade their vehicles, which has continued into the modern day. So much so that now, you can find car finance and leasing deals with a cursory glance online and buy a new or used car immediately with a simple finance agreement.

Magnitude Finance have been helping customers with their car finance for over 35 years, and our dedicated concierge team are on hand to help you with your next vehicle purchase.

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With a thriving industry that keeps on growing, what does the future look like for car financing?

Impact of Technology on Hire Purchase Agreements

Financial services have seen immense transformation over the years, particularly regarding car finance. Online loan applications have become commonplace in 2024, as have instant approvals, and even people with a poor credit rating can typically pay for a car on finance with a set monthly cost, rather than at once.

Artificial intelligence is another widespread technology used in the industry, allowing providers to examine individuals’ credit history and determine whether somebody has a good credit score. Swiftly analysing traditional barometers like missed payments and credit held, they can analyse non-traditional data sources, too, leading to higher accuracy in less time.

These technological advancements have led the industry to change, with more fintechs becoming involved in car finance.

Impact of Economic Factors on Car Finance

The wider economy plays a huge role in car finance, with higher interest rates leading to higher rates for your hire purchase agreement, for example. Inflation is also important, and if things cost more in everyday life, your monthly instalments will likely increase.

However, compliance with FCA guidelines is crucial and future trends will focus on simplifying car ownership. The goal is to unlock innovation and keep a close eye on dealers who charge additional fees for monthly repayments or the total cost of a vehicle they’re leasing.

Consumer Behaviour and Preferences

Consumer preferences have shifted in recent years and there’s an increasing demand for flexible finance options. That’s why fintechs are becoming so popular as they offer highly personalised finance solutions as opposed to traditional dealers, banks, or credit unions.

Sustainability is also a priority for consumers in 2024 and into the future, with more eco-friendly finance options cropping up than ever. Examples of these include green bonds and loans, and lenders are being encouraged to practice sustainability as part of any contract they deliver.

Impact of Autonomous Vehicles

Autonomous vehicles are seeing a rise in the U.S., and we could see self-driving cars on British roads as soon as 2026. This assumption is backed by the AV Act announced in May 2024 which prioritises advanced technology to allow self-driving vehicles on British roads.

It’s predicted that with more eco-friendly and autonomous vehicles introduced, more people will go for carsharing and co-ownership to help their financial situation and the environment. When it comes to car finance, this will likely mean more subscription-based models, where people can try a variety of models as the technology evolves.

The Blockchain and Car Finance

Blockchain technology isn’t just cryptocurrency and the definition is having an advanced database of transparent information shared within a specific network. This kind of system could help track assets and record transactions in a new world of car finance because records are immutable in the blockchain, i.e. they cannot be altered once entered.

This could not only streamline record keeping, but could reduce fraud and disputes relating to car history, ownership, and security. Consumers and lenders can also get a clear picture of a car’s condition before committing to it, reducing the chances of paying for a stolen or damaged vehicle. A combination of blockchain technology and AI tools will likely enable these changes and customers may be able to check maintenance and accident reports among other important things. This is crucial “big data” that will typify the future of automotive sales in general, and particularly, the car finance industry.

The Role of Dealerships in Future Car Finance

Incentives for eco-friendly vehicles will likely increase as the years go on and EVs become widespread in Britain. These might include a lower initial deposit, less interest on monthly payments, and the abolishment of the hard credit check if you choose a sustainable vehicle.

Flexible finance will also need to be introduced en masse with the widespread acceptance of blockchain technology, usage and subscription-based models, and AI-driven credit rating assessments. This will need to be a top-down change from dealerships to finance providers.

Market Predictions

The shift towards online sales and other digitisation practices of the car finance industry will mean that dealerships must change with the times or get left behind.

Predictions for the future include the growth of tailored finance packages to meet the needs of more people, and across-the-board customisation when it comes to vehicle choice, contract length, and even the concept of a final payment due on a vehicle after leasing. Online sales platforms should also grow as time goes by because more people already shop online for car finance deals as opposed to in-person, which may not have been the case in the past.

Electric vehicles are already becoming commonplace, too, and with more government incentives to encourage sustainable vehicles, dealerships will need to develop new marketing strategies, new sales techniques, and new finance options to appeal to an environmentally-conscious, tech-savvy audience.

With the automotive industry changing substantially in recent years, the future looks set to see even more transformation. With the popularisation of electric vehicles, online transformation from fintechs, and the digitisation of the industry, traditional car finance deals won’t cut the mustard. That’s why we’ll likely see more usage and subscription-based models, AI-driven credit checks, and more.