A generation gap is opening between car buyers in the UK, with younger motorists more likely to embrace a “pay-as-you-go” approach to ownership than their parents and grandparents.
With pay-monthly plans the norm for everything from mobile phones to TV packages, a growing number of people seem to be taking a similar approach to their motoring.
A study of different ownership habits has found that half of Millennial car drivers have some form of lease or monthly payment plan on their vehicle compared with just one in ten over-55s.
Some put the choice to pay monthly down to soaring living costs. Average house prices are £215,000, the average student loan debt now stands at more than £32,000 and half of Millennials says their finances are so stretched they aren’t able to save any money.
“PCP in particular has made new cars accessible to more people”
Rob Abrahams, carwow
However, many admit that the monthly contract approach appeals because they don’t want a second-hand car.
Ninety per cent of the under-30s who use car finance said that its main appeal was that it allowed them drive a brand new car while only 30 per cent of the over-55s said that was their main motivation.
And providing more evidence for critics who accuse them of being a “want-it-now” generation, almost three-quarters of Millennials also highlighted the opportunity to switch to the latest model at regular intervals as motivation for paying monthly rather than saving to buy a vehicle outright.
Figures from the Finance and Leasing association show that in the year to March 2017, 86.5 per cent of new private cars sales were financed by its members, up from 82.7 per cent the previous year and a staggerin 164 per cent increase on six years ago.
Separate data from carwow, which conducted the study, shows that personal contract purchase (PCP) deals accounted for 60 per cent of all sales conducted through its site in the last 12 months, with just 30 per cent of cars bought outright.
Such levels of reliance on finance have prompted concerns that we could be heading towards a car finance credit crunch. But for many the lure of a shiny new motor outweigh any potential risks.
Rob Abrahams, head of market development at carwow, says: “Financing of cars has transformed the approach of car ownership amongst today’s young drivers. Saving is much less feasible than in the past, so accessing the latest model on a monthly payment plan is hugely appealing.
“PCP in particular has made new cars accessible to more people.
“With a PCP deal you don’t own the car at the end of the contract unless you opt to and what we are seeing is that actually, very few people pay the ‘balloon’ payment at the end of the agreement – with many opting to start a new agreement on a new car
“For a generation used to paying monthly rather than outright ownership, PCP and PCH [personal contract hire] will increasingly be seen as ‘the norm’ for those who can afford the monthly payments.”
The data comes as Volvo announced a new subscription scheme for its incoming XC40 that takes the concept to the next level. Under the Care by Volvo programme, customers will be able to pay a flat monthly rate that covers everything from the car lease to insurance, tax and servicing and will get a new car every two years.