A recent study has shown that the cost of the average US car is 35% more expensive than in the UK. However, this price difference has not extended to the typical monthly cost of car finance where US car shoppers have historically been better off.
According to the US National Automobile Dealers Association (NADA), the average cost of a new car in the US at the beginning of 2010 was $28,400, or £18,239. Comparatively, in the UK the cost of a new car including VAT was 35% cheaper at £12,000. This variation is driven in part by consumer choice for smaller cars in the UK. However, if the average US car is 35% more expensive than a UK car why is it that people driving up market cars in the US have historically paid less per month than UK drivers? The answer lies with car finance and the use of car leasing. In fact, a large percentage of cars driven by the public in the US are funded by leasing plans, in some areas as much as 50% of all cars on the road. This is a sharp contrast to how people in the UK have traditionally funded their car purchases through the use of hire purchase which often requires a much higher monthly payment. This means that a UK car buyer using hire purchase would have to pay as much as £550 per month to drive a £20,000 BMW 1 Series that a US equivalent would pay only £282 each month if they were using car leasing.
However, austerity is changing the way that UK car buyers arrange car finance as car leasing has very quickly become the most popular finance product supplied by UK dealers with the first half of 2010 seeing more than 50% of car buyers opting for it ahead of more traditional hire purchase methods. Car finance experts, http://www.FinanceAcar.co.uk agreed that austerity is making a difference in how UK consumers look to finance their car. Simon Norman said: “Based on the full cost of the car upmarket car brands are more affordable in the UK than they are in the US. However, American drivers have historically been able to fund these cars at a cheaper monthly rate and the answer lies in the fact that have used car finance more effectively. Many of them lease a car and enjoy the benefits of as much as 50% less in finance costs per month than those that choose to borrow the money to buy the car that they want. However, this changed in the UK in 2010”.
The most popular car finance and car leasing product in the UK for the first 6 months of 2010 was Personal Contract Purchase (PCP). It has become the finance plan of choice for UK drivers because of its flexibility and advantages. Apart from the cost savings, the driver can choose a lease contract with a finance company over a typical period of between two and four years meaning they get newer vehicles more regularly. FinanceAcar points out that when you lease cars, provided a driver looks after the vehicle and keeps within the agreed mileage limits and thereby avoids any excess wear and tear charges, PCP also protects people from depreciation which is borne by the finance company. Finally, when it comes time to change your car, there is no need to negotiate or sell your existing car, you either elect to buy it for a pre-agreed price or hand the car back and get a new one.
FinanceAcar (http://www.financeacar.co.uk) is a UK car finance specialist. It is the world's first car finance marketplace powered by the world's first car finance comparison engine that compares all car finance products for new cars (car leasing, hire purchase and car loans) in one place making it comprehensive in car finance compared to other comparison engines that only compare car loans. The FinanceAcar website compares finance from top UK lenders for more than 6,000 vehicles and offers more than 1,000,000 different prices. The site allows car shoppers to choose their car by make or budget and within seconds it presents the best finance product and best UK monthly price for that car based on the monthly cost of ownership. Once the user obtains the best monthly price, they can get a full personalised quote, obtain a credit check, apply for finance and have their chosen car delivered to their door.