A return to cheaper credit for UK's car buyers

Research by the independent business analyst has predicted year on year growth of 5.6% for the unsecured personal loans market. In contrast car finance will see a far slower growth of only 1% to 2014, as consumers choose the cheaper unsecured personal loan over car finance. In fact it will take until 2014 for the car finance market to return to 2009 levels.

Roderick Logan, analyst at Datamonitor said: "During the recession car finance became more popular, mainly because unsecured loans were so difficult to come by for the majority of consumers. There were very few options open to people who were unable to use cash and although car finance is an expensive way of borrowing, there was little alternative.

The car finance industry will face significant hurdles

"Car dealerships employed aggressive tactics to ensure they could get finance by putting pressure on finance houses. Although it will be good news for consumers that unsecured personal loans are becoming more available, we believe that this will have a direct impact on car finance."

The Datamonitor data reveals that currently, even with unsecured loans hard to get, only about a quarter (23%) of car buyers are using traditional car finance. This reflects how even if there are only a few credit options, consumers are reluctant to choose car finance.

Logan concludes: "As the consumer credit market improves, the car finance industry will face significant hurdles to ensure growth. Unsecured personal loans will once again be their biggest competition, so making it more attractive for consumers to arrange everything through the dealership will become a priority. Making car finance deals more competitive will be crucial."