Car loan timebomb fuels fears of new financial crisis as motors worth £20k are offered without any deposit

THE risks of a new financial crisis are increasing along with the size of car finance deals handed out by garages, experts warned last night.

Though the number of motors bought on cheap credit is finally going down, the total lent remains the same.

 Fewer cars are being bought on cheap credit

Fewer cars are being bought on cheap credit

This indicates customers are taking on higher debt. A Bank of England source warned: “As amounts of consumer credit increase, so do the risks, making the industry increasingly vulnerable to shocks.”

Statistics from the Finance & Leasing Association showed the number of sales on garage credit schemes in April, May and June fell by 16 per cent year on year.

June sales alone were eight per cent down on last year — yet the total value of the loans remained steady.

Insiders say salesmen are being told by manufacturers to offer bigger discounts to reverse the decline. Reports suggest some cars worth up to £20,000 being offered without a deposit.

The trend follows a surge in dealership car finance, up by an average 20 per cent in each of the past five years.

Figures also show around 86 per cent of private new car purchases in the year up to June — worth £18.billion — used dealership car finance, compared with about half in 2009. Meanwhile, the total stock of dealership car finance rose £30billion — three- quarters of total growth of consumer credit.

Geraldine Kilkelly, chief economist at the FLA, said credit deals were “in line with industry expectations of a broadly stable picture for the year as a whole”.

 Lenders have warned about car finance

Lenders have warned about car finance

The data comes a day after the Bank of Englandc warned that lending companies were responding to higher new car prices and dalling used car prices by offering even more generous loans and taking greater risks.

Car finance has boomed in recent years, with the volume growing at double digit rates for the past few years.

Earlier this year the Financial Conduct Authority (FCA) launched an investigation into the industry because it fears poorer customers may be paying too much for credit.

In June, figures from the Financial Ombudsman showed tghat motorists are complaining in record numbers about car finance deals.