Average Car Debt in the UK

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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.

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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:

Option	How it works	Key limits and risks
Debt management plan	Informal repayment of eligible non-priority debts through an affordable budget.	Creditors need not agree, freeze interest or stop court action. Fees apply with some providers; free providers exist.
IVA	Formal agreement covering eligible debts and accepted through the creditor voting process.	Fees, credit effects, asset/equity terms and failure risks apply. Payments and term depend on the agreed proposal.
DRO (England and Wales)	Normally 12 months of protection before qualifying debts are discharged if the order remains in force.	Current qualifying-debt limit £50,000; strict income, asset, vehicle and residence conditions. Homeowners are not eligible. Application is through an approved adviser to the Insolvency Service, not a court.
Bankruptcy (England and Wales)	Formal insolvency that can discharge qualifying debts.	Assets and employment may be affected. Discharge is usually after 12 months, but income payments may continue for up to 3 years.
Consolidation loan	New borrowing to repay selected existing debts.	Does not write off debt. Fees or a longer term can increase the total paid; secured borrowing puts your home at risk.
Agreed payment break or reduced payments	A temporary arrangement negotiated with the creditor.	Interest may continue, credit reporting can be affected, and the debt remains. Terms require agreement.
Informal negotiation	Ask creditors for affordable payments or a settlement.	Acceptance is not guaranteed; record terms in writing. Priority bills still need separate attention.
Equity release	Eligible homeowners may access property value through a lifetime mortgage or home reversion.	Reduces the estate and may affect benefits or care funding. Requires specialist advice and comparison of alternatives.

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.

How the introduction works

The Debt Advice Service can discuss your circumstances and explain available options, including their benefits, costs and risks.

Options depend on your circumstances. You decide whether to proceed.

Continue to the enquiry form

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.