Will Car Finance Delinquency Rise in 2023?
The market for new car sales has remained volatile for some time now, with the UK industry suffering from global supply chain issues that have been exacerbated by Covid-19, the war in Ukraine, and the continued fallout from Brexit.
This climate saw new car sales slump once again in 2022, as Brits bought 2% fewer cars in total than they did in 2021. As a result, last year’s performance was the worst in the industry since 1992, when the national economy was also mired in crisis as the UK withdrew from the exchange rate mechanism of the European Monetary System.
For those who did buy new cars last year, the current impact of rising inflation and interest rates may increase the risk of vehicle delinquency. We’ll explore this below while asking what steps you can take to keep up with finance repayments and maintenance costs.
The Impact of Inflation and Interest Rates
The cost of living has reached a fever pitch in the UK, as the macroeconomic climate and monetary policy measures from the central bank continue to eat into household and business finances.
Two of the biggest issues are inflation and interest rates, which are intrinsically linked and tend to correlate strongly with one another. This is partly because interest rates are often used to help control inflation as part of wider monetary policy measures, with this having been borne out over the last 12 months.
More specifically, inflation hit 10.5% in December, and while this was 0.2% lower than the previous month, it’s considerably higher than the Bank of England’s (BoE’s) target of just 2%.
To combat inflation as it rose to double digits, the BoE initiated multiple base rate hikes through 2022. As a result, the base rate is now 4%, with this 40-year-high compounding the cost-of-living crisis in the short term by increasing the cost of borrowing and mortgage repayments.
How to Keep Up With Your Repayments and Car Finance
Currently, the outlook for 2023 is mixed, as while the UK is expected to enter a technical recession later in the year, the BoE thinks that this will be shorter and less painful than initially imagined.
However, even if PM Rishi Sunak can halve inflation to around 5% by the end of this year as pledged, this metric probably won’t return to the central bank’s 2% target by the third or final quarter of 2024.
This means that you may have to take practical and proactive steps toward affording your car finance and repayments in 2023.
If you’re aged over 55, a homeowner, and struggling with car finance repayments as part of wider financial challenges, you may want to consider releasing any equity that exists in your home. You can check out how much you’re eligible to receive through an equity release calculator, before accessing a lump sum that frees up a significant cash amount and allows you to potentially downsize your home. It’s worthwhile to also consider looking at car finance gap insurance given that car prices are still relatively high compared to pre-covid levels.
Other, less drastic, options include increasing your monthly earnings, either by taking on overtime at your existing job or entering the so-called gig economy.
This can unlock access to lucrative part-time work and freelance contracts, helping you to increase your disposable income levels immediately and account for the wider increases in your cost of living.
