Around 1.4 million Brits may be deterred from purchasing a new car through finance this year due to poor credit scores forcing high interest rates.
According to research conducted by credit check company Clearscore, around a third of Brits have poor credit scores and would therefore be offered the highest annual percentage rates (APR) on finance car purchases.
For example, someone with a poor credit rating looking to buy a 2017 Land Rover Discovery, which costs from £43,495, would likely be faced with a five year finance deal commanding 31.6% APR, following a 10% deposit.
After the five year term the buyer would have spent £40,672.57 in interest alone, or 94% of the car's overall value. A high credit score person faced with 5.9% APR would have paid just £7,775.66 in the same period, which represents just 18% of the car's value.
The same scenario on a £100,000 car would leave a poor credit score buyer paying £93,796.73 after five years. A high credit score buyer would pay less than £18k.
“We estimate that 33% of people fit into this lowest band,” a Clearscore spokesman told Autocar. “Given that 80% of cars are bought with car finance of some sort, we estimate that this issue effects around 1.4 million people.”
Conversely, research shows that just 22% of people have an excellent credit score and would therefore be offered the lowest APR.
Justin Basini, Clearscore CEO added: “Car finance deals are more popular than ever and can be a great way to make your dream car affordable. One way to improve the deal you’re offered is to choose the car you want a few months in advance and work hard on improving your credit score before applying for finance – a high score can reduce the cost significantly.”
UK car sales reached their highest on record in 2016, largely thanks to attractive finance. That trend is expected to stall in 2017, however, thanks to the reduced value of the pound and economic uncertainty.