UK car finance index 2025

UK car finance index 2025

The consumer car finance market is growing with a reported 11% increase in new business volumes for March 2025 compared to the previous year, according to the Finance & Leasing Association (FLA).

Furthermore, it's estimated that in recent years, 80% - 90% of new cars and an increasing number of used vehicles have been bought with finance agreements.

As car prices continue to rise, there is a growing need for car financing options, enabling consumers to afford new and used vehicles.

Here at First Response Finance, we decided to analyse our own data covering the past three years to reveal the key trends for UK car finance in 2025.

Our report reveals interesting insights into Brits' car finance preferences and demonstrates how various factors can affect your monthly car finance payment.

If you're considering getting your first car on finance, our own expert also shares key tips to ensure you're getting the best possible deal.

Car finance costs are rising slower than inflation and wage growth

Currently, our data shows that the average monthly car finance payment in the UK is £244 (+8% compared to 2022), with an average repayment term of 48 weeks. On average, our customers spend just 11% of their income on car finance.

Furthermore, data analysis shows that car finance repayments have not risen as sharply as other living costs across the country.

According to the Bank of England Inflation calculator, goods and services cost 13% more in April 2025 than they did in 2022. Car finance costs at First Response Finance have risen at a slower rate than this figure.

During the same time period, average weekly earnings have increased by 19%, from £602 in January 2022 to £716 in February 2025, offering further reassurance that for many drivers monthly repayments remain manageable even in a high-inflation environment. 

Brits love their Fords, Vauxhalls, and Nissans

When it comes to car finance, most Brits prefer to pick from one the following three car brands: Ford, Vauxhall, and Nissan.

The Ford Focus, known for its reliability and low running costs, takes the top spot with over  3,500 car finance agreements between 2022 and March 2025.

Coming in second, the Nissan Qashqai has received many positive reviews for its spacious and practical interior and comfortable ride quality. These features make it a great option for a family car, without being overly flashy or expensive.

The Vauxhall brand first appears on 4th place in the list with its widely popular Astra, and Volkswagen's Golf comes in at number 7.

Chevrolet, Smart, and Fiat are among the cheapest car brands to buy on finance

For money-conscious Brits, there are many ways they can make further savings on their monthly car finance payments.

The manufacturer of the car you choose can have a big impact on your price quote, as lenders consider a range of factors before making you an offer.

These include estimated depreciation rates, reliability and repair costs, insurance costs, manufacturer incentives, and more.

These are the top 10 cheapest cars to purchase on car finance in the UK:

1. Rover - £116/month
2. Perodua - £126/month
3. Daihatsu - £132/month
4. Microcar - £145/month
5. Chevrolet - £171/month
6. Saab - £176/month
7. Smart - £188/month
8. Fiat - £189/month
9. Dacia - £201/month
10. Dodge (USA) - £202/month

Lancaster is the cheapest region to take out car insurance

Another factor that can make a difference on your car finance quote is your residential postcode. One of the things lenders do to determine potential risks is analysing insurance and theft statistics across different towns and regions.

It's worth noting that your postcode doesn't automatically drive up your car finance costs on its own. Socioeconomic factors such as employment rates and average incomes across different neighbourhoods also play a significant role in determining the average car finance costs, as drivers with higher purchasing power may go for more expensive car models.

How to lower your monthly car finance payments further

Jonathan, finance expert at First Response Finance, comments on the data:

"Our analysis shows that during times of rising costs and pressures on household finances, car finance remains an affordable and accessible option for car ownership in the UK.

"There are many factors that can affect your quote, including your postcode and the specific car make you choose.

"It's always worth shopping around and being clear on what you can comfortably afford each month.

"Checking your credit score, opting for fixed rate finance plans, and comparing providers can help consumers secure the best deal, especially in a changing economy."

Here are Jonathan's top 3 ways to get the best possible car finance deal: 

Improve your credit score 📈

One of the most effective ways to improve your credit score is by making payments on time. Missed or late payments can have a negative impact, causing your score to drop significantly.

Even if your credit score is good, lenders will look at how much of your income is already committed to other debts, known as your total debt-to-income ratio. This includes car finance, personal loans, and credit cards.

As a general rule of thumb, you should aim to keep your total monthly debt repayments below 30-35% of your gross monthly income.

Instead of applying for other credit cards or loans, focus on managing the ones you already have. Once your current loan is paid off or nearly finished, you'll be in a stronger position to apply for additional credit if needed, without damaging your score in the process.

Choose the right payment plan 💰

If you want to be sure exactly how much your car finance payment will be every month, you should choose a fixed-rate loan. This means that the interest rate set at the start of the contract will remain the same throughout.

While fixed-rate loans do have higher initial rates at the start of the agreement than variables ones, they can help those with tight budgets and stable incomes.

If you're looking to further bring down the cost of your monthly payments, a Personal Contract Purchase (PCP) can help.

With PCP, you can enjoy lower monthly payments because you're not paying off the full value of the car. This gives you more flexibility at the end of the contract, as you can choose to own the car, return it, or trade it in.

Plus, PCP offers depreciation protection, so if the car depreciates more than expected, you can simply hand it back and avoid any financial loss.

PCP does come with conditions, though. There are typically mileage limits - exceeding these can incur penalties, sometimes as high as 10p per mile. Moreover, if the car is returned with damage or excessive wear and tear, you could face additional charges.

Compare prices across a range of different car makes and models 🚗

You might have a specific vehicle in mind when you apply for car finance. However, you might be missing out on some additional savings if you don't make comparisons with similar car makes and models.

Our research shows that the car brand of the vehicle you choose can save up to £372 every month.

For example, instead of a Tesla, why not go for a Nissan Leaf or a Hyundai Kona Electric?

By shopping around and considering other, less popular, vehicle brands and models, you can be sure that you find the right vehicle which fits both your needs and your budget.

Car finance continues to be an affordable option

The findings from our index show that despite the rising cost of living, car finance remains an affordable and accessible option for drivers from various backgrounds.

While several factors such as postcode and car make and model can affect the monthly cost of your car finance agreement, it's worth shopping around and considering all your options before committing to a plan.

It's still important to keep in mind that every car finance application is assessed on individual circumstances.

Has bad credit stopped you from purchasing car finance in the past? Here at First Response Finance, we specialise in helping people by offering bad credit finance solutions tailored to their situation. This makes it easier to get car finance despite past credit challenges.

You can also use our car finance calculator to get an idea of how much your Hire Purchase agreement might cost before you apply. And when you're ready, you can get a quote here.

 

Information includes references to:

Office for National Statistics - Earnings and hours worked, place of residence by local authority

Office for National Statistics - Average weekly earnings in Great Britain: April 2025

Bank of England - Inflation calculator

Motor Finance Online - UK consumer car finance registers 11% growth in March 2025: FLA

 

Methodology:

Data analysis of our own data (80,000+ customers on database), covering car, motorbike, and van finance from the years 2022 - 2025 (up until March)