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Average Car Debt in the UK

Scott Nelson MoneyNerd Janine Marsh MoneyNerd
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Scott
Scott Nelson MoneyNerd

Scott Nelson

Debt Expert

Scott Nelson is a renowned debt expert who supports people in debt with debt management and debt solution resources.

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&
Janine
Janine Marsh MoneyNerd

Janine Marsh

Financial Expert

Janine is a financial expert who supports individuals with debt management, cost-saving resources, and navigating parking tickets.

Learn more about Janine
· May 27th, 2024
Could you legally write off some debt? Answer below to get started.

Total amount of debt?

For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

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average car debt in the uk

For free & impartial money advice you can visit MoneyHelper. We work with The Debt Advice Service who provide information about your options. This isn’t a full fact-find, some debt solutions may not be suitable in all circumstances, ongoing fees might apply & your credit rating may be affected.

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.

Could you legally write off some debt?

There are several debt solutions in the UK, choosing the right one for you could write off some of your unaffordable debt, but the wrong one may be expensive and drawn out.

Answer below to get started.

How much debt do you have?

This isn’t a full fact find. MoneyNerd doesn’t give advice. We work with The Debt Advice Service who provide information about your options.

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:

Debt Solution Description Formality Debt Type Debt Range Legally Binding Impact on Credit Score Asset Risk Monthly Payment Duration Creditor Agreement Required
Debt Management Plan (DMP) Agreement to pay back non-priority debts in one monthly payment. Informal Non-priority debts Any amount
No Yes No Varies Varies (until debt is paid) No (but creditors must be informed)
Individual Voluntary Arrangement (IVA) Agreement to pay back all or part of your debts over a set period. Formal All or part of debts Usually over £10,000 Yes Yes Possible Fixed Fixed period, usually 5-6 years Yes (75% by debt value must agree)
Debt Relief Order (DRO) Freezes debt for a year and be potentially written off. Formal Non-priority debts <£20,000 debt Yes Yes No None during freeze 12 months No (court approval needed)
Bankruptcy Legal status for those who cannot repay debts, potentially writes off debts. Formal Unmanageable debts Any amount, typically high debt Yes Yes High None during bankruptcy Usually 12 months, then discharge No (court process)
Consolidation Loan Taking out a new loan to pay off all existing debts. Multiple debts Based on loan amount Varies Yes Depends on loan type Fixed Depends on loan terms No
Payment Holiday Temporary relief or reduced payments offered by creditors.
short-term financial difficulties Any No Yes Low Reduced or paused payments Break of up to 6 or 12 months, depending on circumstances, payment history, and creditor’s policy. No
Informal Negotiation Direct negotiation with creditors for reduced payments or extended terms. All debts Any No Possible No Negotiable Until agreement terms are met No
Statutory Debt Repayment Plan (SDRP) Plan to repay debts over a reasonable time, with protections from creditor action. Formal All debts Varies Yes Yes No Fixed Varies, based on ability to pay Yes
Equity Release Homeowners release equity from their home to pay off debts.
Debts of homeowners, typically older individuals aged 55+ Varies and depends on property value Yes Yes Asset (home) is used as collateral Varies 8-10 weeks timeframe from application to fund disbursement. Lifetime; repaid on house sale/death. No

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 loans. 
  • 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.

How a debt solution could help

Some debt solutions can:

  1. Stop nasty calls from creditors
  2. Freeze interest and charges
  3. Reduce your monthly payments

A few debt solutions can even result in writing off some of your debt.

Here’s an example:


Situation

Monthly income £2,504
Monthly expenses £2,345
Total debt £32,049

Monthly debt repayments

Before £587
After £158

£429 reduction in monthly payments

If you want to learn what debt solutions are available to you, click the button below to get started.

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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. 

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.

Thousands have already tackled their debt

Every day our partners, The Debt Advice Service, help people find out whether they can lower their repayments and finally tackle or write off some of their debt.

Natasha

I’d recommend this firm to anyone struggling with debt – my mind has been put to rest, all is getting sorted.

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Could you legally write off some debt?

Answer below to get started.

How much debt do you have?

This isn’t a full fact find. MoneyNerd doesn’t give advice. We work with The Debt Advice Service who provide information about your options.

References

  1. StepChange – Credit safety net report
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The authors
Scott Nelson MoneyNerd
Author
Scott Nelson is a renowned debt expert who supports people in debt with debt management and debt solution resources.
Janine Marsh MoneyNerd
Debt Expert
Janine is a financial expert who supports individuals with debt management, cost-saving resources, and navigating parking tickets.