Finance penetration slowing, but engagement is still high, says Auto Trader

Finance penetration rates for new and used car funding is slowing, but increasing APRs are having limited impact on engagement according to new research from Auto Trader.

The company has tracked data through the Finance and Leasing Association, the Society of Motor Manufacturers and Traders (SMMT) and the DVLA to show that finance penetration as a percentage of cars sold on finance has dropped from 92% down to 77% as of March 2023 for new cars.

Used car finance penetration dropped from 53% in 2022 to 49% as of March 2023.

Average APRs for used car finance has increased to 11.5% in June and the average for new cars has increased to 8.4%.

Monthly payments on used cars have been rising over time due to higher APRs and car prices, but the research also shows there has been an increase in the number of interactions with used car finance calculators as people look for the best offers.

Rachael Jones, director of automotive finance, Auto Trader, said: “Given the growing squeeze on household finances, the rising interest rates are a concern, but we’re seeing very little direct impact on demand for finance.

"Unlike tracker mortgages, car finance is a fixed monthly cost, which means in-contract drivers don’t need to worry about base rate increases impacting their monthly outgoings.

“And for those who are in the market for a new car, it’s worth putting the increase into context. While the recent rise in interest is adding hundreds of pounds to the average monthly mortgage bill, the average used car finance payment is only up around £8 a month more on last year.

“On our marketplace, the growth in rates is having no effect on consumer demand. With average used car prices up around £3,500 in just two years, more drivers than ever are considering finance to help fund their next car, with the number of people using our finance calculators increasing 15% on last year.”

The spotlight on car finance trends is part of Auto Trader’s Monthly Market Intelligence for June, which shows used car demand was 2% ahead of the previous year as supply remained constrained, falling by -4% in June.

Auto Trader’s data also shows that used car sales increased 3% year-on-year (although the additional June 2022 Bank Holiday in celebration of the Queen’s Jubilee contributed to this uplift).

Used car retail prices increased by 3.2% on a like-for-like and year-on-year basis in June, marking 39 consecutive months of growth.

The company said the underlying headline movement on used car retail prices were strong price movements on older cars due to high levels of demand.

Auto Trader’s half year update also shows the site recorded 466 million site visits over the first six months of the year, an increase of 61m compared to the same six month period.

In June, Auto Trader’s site visits were up 11% on last year’s levels.

While market activity remains robust, Auto Trader said: “The second half of 2023 faces the continued challenges of persistent inflation, elevated interest rates and squeezed incomes.”

• Auto Trader's full Monthly Market Intelligence report for June is available to read in full here.