LONDON (Reuters) - The proportion of cars being bought in Britain on credit is rising, according to data released on Friday, as a regulator begins a review into how finance plans are sold due to fears of irresponsible lending.
In the 12 months to March, 86.5 percent of new private cars were bought by consumers using finance supplied by members of the Finance and Leasing Association (FLA), up from 82.7 percent in the same period in 2016, the industry group said.
The total value of consumer car finance provided in March rose by an annual 13 percent to a record 3.6 billion pounds, as buyers brought forward sales to avoid a tax hike which came into effect on April 1.
Since Britain began recovering from the global financial crisis at the start of the decade, most sales have been made using personal contract plans (PCP), where a buyer puts down a deposit and then rents the vehicle for two to three years.
At the end of the period they have to decide whether to buy the car outright or switch to a new model and continue making monthly payments, helping to propel car sales to record levels in 2015 and 2016.
Last month, Britain’s Financial Conduct Authority said it will conduct a review into motor finance, warning there may be a “lack of transparency, potential conflicts of interest and irresponsible lending.”
The total number of new cars sold using finance rose 4 percent to 1.05 million vehicles with an 8 percent increase in used car sales on credit to 1.27 million.
The FLA’s Head of Research and Chief Economist Geraldine Kilkelly said the level of new car finance in the first quarter was in line with the industry’s expectations.
A plunge in sales of diesel cars in recent months because of anti-pollution levies could, however, put the lucrative credit model at risk by driving down the value of used vehicles which are sold second-hand.
Reporting by Costas Pitas; Editing by Elaine Hardcastle