Car finance costs rocket by up to 49% ahead of Brexit

  • PCP finance costs have risen by up to £4,606
  • City cars hit hardest with biggest price hikes
  • Costs could rise further with disorderly Brexit

UK drivers could be as much as £98 per month worse off - totalling £4,606 over the length of their contract - in car finance costs alone, in the wake of the country’s vote to leave the EU in June 2016, Parkers research has discovered.*

This comes following the dramatic fall in the value of the pound, with UK currency tumbling in value from more than 1.3 euros to the pound in May 2016 to barely 1.1 euros in February 2019.

The much weaker pound has seen PCP finance costs for numerous cars – a large proportion of which are imported from Europe or use many European parts – rocket by up to 49% in monthly payment terms. Worse than this, monthly payments have increased more than one-and-a-half times as fast as cars’ cash prices, putting real pressure on household budgets when drivers come to the end of their current contract and look to change their car.

Peugeot 108 PCP finance

With more than 90% of privately purchased cars being financed, potentially millions of drivers could be in for a shock when they come to replace their car. Consider the fact the average UK household spent £900 more than it earned in 2017 (Office for National Statistics), and hundreds of thousands of families could find themselves priced out of the new car finance market – with the inability to stomach higher monthly bills and no savings to put down a bigger deposit to shrink the instalments.

Hunting for a new car? We've rounded up the best PCP finance offers available now:

Why are car PCP finance costs increasing faster than cash prices?

PCP finance costs have been hit so hard as monthly costs are based upon the difference between cars’ cash prices – which are going up – and their predicted values at the end of the contract – which have gone down in many cases. This means that drivers signing up for a new contract have to pay far more every month simply to get the same car.

Hyundai car dealership

The average monthly payment increase for the 14 models Parkers studied, stands at a substantial 17%, meaning a driver with an ordinary supermini could expect their costs to leap from around £200 per month to £234 when they came to hand their car back for an identical new one.*

The biggest contributor in these PCP finance cost increases are cash prices that have leapt by nearly 11% over the same period – nearly three times the rate of inflation. Other significant factors include volatile used car values, especially affecting diesel cars, with drivers having to pay a higher proportion of cars’ value in their monthly payments plus reduced discounts and increased interest charges in several cases.

Worryingly, it’s the cheapest cars that are increasing in cost fastest. Many city cars have spiralled out of control in cost terms, with one model ramping up from £76 to £113 per month in just two years – an increase of 48%.*

Suzuki Celerio PCP finance

Click here to see how the fallout from the Brexit process is causing city car finance cost hikes.

Will you be able to afford to finance the same car next time around?

Parkers research reveals that costs are increasing so fast that drivers who are tied into finance contracts currently may not be able to afford to finance the same car next time around (assuming the same contract terms).*

A Fiat Panda city car that would have set you back £119 per month two years ago is now £153 per month for new customers – despite being one of the oldest small cars still on sale and scoring an abysmal zero-star safety rating.*

Sign up for a new Panda today, therefore, and that same car could cost you an additional £1,580 over the four-year contract compared with someone who signed the contract in January 2017.*

BMW 1 Series PCP finance

And the Panda is far from the worst culprit. Opt for a diesel BMW 1 Series and you’d have to stump up an additional £98 every single month on PCP finance compared with someone who picked up the car 18 months ago. That means you’d pay a total of £4,606 more in total for exactly the same car.*

There are several tactics you can employ to make sure you can get the car you want for a monthly payment you can afford next time around. Read the Parkers guide to how to get the car you want on budget.

Family car finance costs up by around 10%

It’s not just the BMW 1 Series that will now cost you much more to finance. The Vauxhall Mokka X has risen from £276 to £317 per month – costing you a total of £1,438 more. That’s due to a £1,880 cash price increase and the cancelling of a £500 finance discount that was previously available.*

Vauxhall Astra PCP finance

Meanwhile, go for a Vauxhall Astra and finance costs have risen by 9% - taking monthly payments up from £297 per month to £324. Blame a substantial cash price hike and lower residual values here.*

Monthly payments have also gone up 9% for a petrol BMW 1 Series – though less than the diesel above – due to higher cash prices and the car being worth less than expected when you hand it back.*

Do your homework, however, and great value PCP finance deals are still available. You just have to shop around and haggle hard, to make sure you’re getting the most for your money. Check out the best new car finance deals below:

New Ford Focus £30/month less than the old one

Cash prices for the brand new Ford Focus are practically identical to the old model – though the previous version was available with large discounts. However, Ford now offers you the chance to buy a car online – with the type of discounts you’d normally have only managed to negotiate in the dealership.

Ford Focus PCP finance

This means that while a Focus that would have cost you £259 per month in January 2017 is now £276 per month on Ford’s online system, that price plummets to just £229 per month on the Buy Online portal.*

That’s a saving of 12% and you get the brand new – much improved – model. As always, though, once you know what you want, it’s worth going into your local dealer and haggling further, as you could be amazed by just how much you could save.

Read our car finance haggling tips below to make sure you get the best deal with the least fuss.

Car finance: how to get the best deal

Be prepared and there’s no reason to pay through the nose for your next car finance contract. Know what you’re looking for and compare different models – to find the one that offers you the best value – and there’s every reason you should get a good car for a good value monthly payment.

We’ve put together seven steps to ensure you get the car you want for a monthly payment you can afford.

  • Push for a cash discount before talking about finance
  • Make sure you get a finance discount – known as a deposit contribution
  • Choose an in-stock car for more scope to haggle
  • Ask the dealer to throw in extras like a service plan
  • Get quotes from more than one dealership
  • Do walk away if you’re not getting a good deal
  • Give yourself plenty of time at the showroom

For all the details about how to get the best deal for you, read the Parkers guide to getting the best car finance deal.

* Parkers research January 2017 to February 2019: manufacturer PCP finance offers using like-for-like finance terms