Average Car Debt in the UK

Q: What happens if I don’t pay my car finance?

If you can’t afford your car debt, then you might find you miss a payment. Even one missed payment can have negative financial implications, such as: - A late fee could be applied to your account - Interest charges may increase - A mark may be added to your credit report If you continue to miss your car loan payments, then the lender may begin proceedings to repossess your car.

Q: Is it illegal to finance a car for someone else?

Yes, it is illegal to finance a car for another person and this is known as ‘fronting’. A lender\'s decision to provide finance to you will be dependent on your personal circumstances, so an agreement for someone else in your name will contain incorrect information. If you want to use credit to buy a car for someone else, then the best way to do it is to co-sign a finance agreement with them. If you are purchasing a car for your child, then the law is slightly different and you may be able to finance the vehicle in your name. This is because your child might not have built up their own credit score yet, making it harder for them to get their own loan. However, to do this, you’ll need to find a specialist lender.

Q: Can I get a car loan without a credit check?

Reputable car dealers will not allow you to finance a vehicle without first running a credit check. However, having bad credit does not necessarily mean your loan application will be rejected. Car loans offered to people with bad credit may have higher interest rates. It’s also possible that someone with good credit will be required to co-sign for the loan.

Q: Can a car loan be paid off early?

Yes, typically you’ll have the option to pay off your car loan early. If you do decide to do this, then you’ll likely have to pay an early repayment fee. However, the total cost of the fee will usually only equate to one or two months of interest on your loan, so you’ll still be saving money over time. If you want to pay your car loan off faster without incurring the early repayment fee, then you might prefer to refinance your loan. You might also have the option to make more frequent payments, such as twice a month instead of once a month.

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.

Average Car Debt in the UK

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 in the UK

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:

Stop nasty calls from creditors
Freeze interest and charges
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.

Get started

Loans for Used Cars in the UK

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 car 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.

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.

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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Car Debt FAQs

What happens if I don’t pay my car finance?

If you can’t afford your car debt, then you might find you miss a payment. Even one missed payment can have negative financial implications, such as:

– A late fee could be applied to your account
– Interest charges may increase
– A mark may be added to your credit report

If you continue to miss your car loan payments, then the lender may begin proceedings to repossess your car.

Is it illegal to finance a car for someone else?

Yes, it is illegal to finance a car for another person and this is known as ‘fronting’. A lender’s decision to provide finance to you will be dependent on your personal circumstances, so an agreement for someone else in your name will contain incorrect information.

If you want to use credit to buy a car for someone else, then the best way to do it is to co-sign a finance agreement with them.

If you are purchasing a car for your child, then the law is slightly different and you may be able to finance the vehicle in your name. This is because your child might not have built up their own credit score yet, making it harder for them to get their own loan. However, to do this, you’ll need to find a specialist lender.

Can I get a car loan without a credit check?

Reputable car dealers will not allow you to finance a vehicle without first running a credit check. However, having bad credit does not necessarily mean your loan application will be rejected.

Car loans offered to people with bad credit may have higher interest rates. It’s also possible that someone with good credit will be required to co-sign for the loan.

Can a car loan be paid off early?

Yes, typically you’ll have the option to pay off your car loan early. If you do decide to do this, then you’ll likely have to pay an early repayment fee. However, the total cost of the fee will usually only equate to one or two months of interest on your loan, so you’ll still be saving money over time.

If you want to pay your car loan off faster without incurring the early repayment fee, then you might prefer to refinance your loan. You might also have the option to make more frequent payments, such as twice a month instead of once a month.

References

StepChange – Credit safety net report