Average Car Debt in the UK

If you’re wondering about the average car debt in the UK, this article is here to help.

Car finance payments can be quite stressful, but don’t worry! You’re not alone. Each month, over 170,000 people visit our website looking for guidance on debt solutions.

In this easy-to-understand guide, we’ll cover:

•  The current average car debt in the UK
•  Information on loans for new and used cars
•  The impact of missing car payments on your credit score and legal standing
•  Where to find professional advice for car debt
•  Frequently asked questions about car debt

It’s common to feel unsure about seeking help when dealing with car debt. In fact, Citizens Advice revealed that 60% of adults facing financial difficulties hesitate to seek assistance.¹

But rest assured, we’re here to help you.

UK Statistics

Average car debt across the UK has been growing steadily over the last few years.

From 2017 to 2021, the average car loan amount jumped from £5,666 to £7,142. This is an increase of 26% over five years, however, the increase has been a shocking 87% over the last ten years. 

Although car debt has been going up, wages have not grown at the same rate.

Average wages have only increased by 33% since 2009, which has left many households having to spend a higher percentage of their income on debt repayments. 

The average UK consumer is currently paying between £300 and £400 a month on their car finance, with 10.1% of consumers spending upwards of £500 a month. 

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Debt Solutions Comparison

Dealing with car debt and missed payments can be scary. But don’t worry, there are different debt solutions available that can help you.

These are:

Loans for New Cars

The market for cars in the UK is huge and buying a new car will usually cost more than purchasing a used car.

This potentially means bigger loans and longer repayment periods. 

• Currently, almost £17.5 billion is borrowed every year to pay for new cars in the UK.
• Before the coronavirus pandemic, almost £20 billion was borrowed every year to pay for new cars.
• From 2009 until 2022, the average amount of money borrowed to buy a new car increased from £11,964 to £25,039. 
• In 2009, only 40% of privately-purchased new cars were financed at the point of sale, with the majority of financing coming from external sources, such as personal loan rates. 
• In 2022, 93% of privately-purchased new cars were financed at the point of sale, meaning the majority of car loans are now tied to the dealership. 
• In the twelve months to September 2021, consumers bought 728,690 new cars through financing.
• In the twelve months to September 2021, businesses bought 323,660 new cars through financing. 

Currently, almost £17.5 billion is borrowed every year to pay for new cars in the UK.

Some people don’t even view car debt as debt in the traditional sense.

Car debt is still debt so it is important to keep up with your repayments. If you don’t, you can end up with serious elgal issues to deal with.

This can also have a negative impact on your credit score.

Loans for Used Cars

The data shows that used cars are a more popular choice for UK consumers than new cars, with higher sales figures recorded for second-hand vehicles.

So, despite used cars costing less, the total amount borrowed across the country to fund these sales is actually higher!

• Between July 2021 and June 2022, more than £22 billion was borrowed to pay for used cars. 
• From 2009 until 2022, the average amount of money borrowed to buy a used car increased from £8,444 to £15,771. 
• In the twelve months to September 2021, consumers bought 1,345,240 used cars through financing.
• In the twelve months to September 2021, businesses bought 50,490 used cars through financing.
• Year-on-year growth for used car loans is increasing every month.

From 2009 until 2022, the average amount of money borrowed to buy a new car increased from £11,964 to £25,039. 

Are there legal repercussions for missing payments?

If you realise that you can’t afford to pay your car finance anymore, you should tell the car finance company.

In some situations, you might be able to negotiate an alternative payment plan. 

You may even be able to voluntarily surrender your car, depending on the type of contract that you have. If you are unsure, you can read your contract or contact your car finance company to find out. 

If you do nothing, you run the risk of your car being repossessed.

You will get a reminder after you miss the first payment.

You may get a second reminder if you miss another payment or you can be sent a notice of arrears. This arrears notice will tell you how much you owe and when you need to pay it. 

If you do nothing and stay in arrears, your car finance company can send a default notice which will give you 14 days to pay off all the debt in full. If you don’t pay off the balance, your car agreement can be ended and your car repossessed.

The car finance company has the legal right to repossess your car if you don’t pay them back.

Take the first step towards tackling your debt

Every day, our partner, The Debt Advice Service, helps people understand their options for dealing with debt. Their debt advice is free, with no obligation to proceed.

MoneyNerd introduces you to The Debt Advice Service. We do not provide debt advice or recommend debt solutions.

Natasha

Very helpful and informative thank you

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References

1. StepChange – Credit safety net report