What Will the Cost of Living Crisis Mean for Car Buyers in 2025?
As 2024 comes to a close, our attention is beginning to turn towards the new year and what the next 12 months might have in store for the automotive world. While recent forecasts from the Bank of England suggest inflation will return to normal next year, the cost of living crisis is far from over, and many of us are still facing rising costs.
From energy bills to food costs, there is a lot of pressure on households, and if you are in need of a new car in 2025, you won’t be alone in wondering how you’ll be able to make it work within your budget. Thankfully, there are options out there, and there are lots of attractive finance options available that could make owning your dream car a reality.
The current market
Although the pressure on households has eased compared to this time last year, the UK remains in a cost of living crisis that is continuing to strain household finances. Inflation continues to be stubbornly high as the cost of everyday essentials has yet to fall, while interest rates make borrowing more expensive across the board.
While energy prices might have stabilised compared to their peak, they are still higher than pre-crisis, leaving families with less disposable income. These bills, along with rising council tax and rent, are further eating into household budgets, making it harder for people to save or spend on discretionary items.
However, although these challenges are certainly daunting, they don’t need to put you off buying a new car completely. Instead, drivers need to expand their search and explore options that better align with their financial situation. The savvier they are with their approach and the more thorough their search, the better their chances of owning their dream car.
How the cost of living crisis is affecting car buyers
Taking a look at the automotive industry specifically, the cost of living crisis has reshaped the market in a number of ways, affecting both new and used car buyers.
New cars
Manufacturing and retail costs have risen sharply due to global supply chain disruptions, higher raw material prices and inflation. These factors have driven up the price of new vehicles, making it increasingly difficult for buyers to find affordable models. Additionally, manufacturers are focusing on producing higher-margin vehicles, further limiting options in the budget-friendly segment.
Used cars
The used car market has also been heavily impacted. Supply chain issues and a slowdown in the production of new vehicles over the past few years have led to reduced availability of second-hand cars, which caused prices to surge. However, this looks to have started to reverse, and Auto Trader is predicting sales will increase next year.
Running costs
Of course, it’s not just about the cars we’re buying. Running costs are also posing another obstacle, with fuel prices remaining unpredictable while the cost of charging EVs is also on the rise. These costs, combined with increased insurance premiums and higher prices for repairs and routine maintenance, can make buying a new car seem out of reach for many households, but that might not be true.
Why car financing could be a smart choice
In the current economic climate, where household budgets are under pressure, car financing offers a practical solution for many UK buyers. Instead of facing the financial strain of a large upfront payment, financing allows buyers to spread the cost of a vehicle over manageable monthly instalments, helping to preserve cash flow for other essential expenses.
Car financing provides flexibility, with options like Personal Contract Purchase (PCP), Hire Purchase (HP) and leasing:
- PCP
These agreements offer lower monthly payments and the option to buy the car at the end of the term or switch to a newer model.
- HP
This option allows buyers to own the car outright once the payments are complete.
- Leasing
Leasing provides a lower-commitment option, ideal for those who want to avoid ownership responsibilities altogether.
Having a financial safety net is essential during a cost of living crisis. Car financing will help you keep your savings intact, allowing you to maintain a reserve fund for those unexpected expenses that can suddenly arise.
Financing can also help open up the door to higher-quality and newer vehicles. Instead of settling for an older, less reliable car that may have higher maintenance costs, buyers can opt for a newer model with better fuel efficiency, modern safety features and a manufacturer’s warranty, saving drivers money in the long term.
Finally, with inflation driving up car prices, financing agreements allow buyers to lock in the cost of a vehicle at today’s rates. This can help to provide some protection against further price increases, ensuring affordability over the term of the agreement.
How to make your decision
Lenders are increasingly offering tools and guidance to help buyers find the perfect finance option for their needs. Yet, while there is no doubting the flexibility offered by these finance deals, it is still essential that drivers do their research and understand what is required.
To make an informed decision, buyers should first assess their financial health. Take the time to determine how much you can realistically afford to spend each month on repayments, but also remember to factor in additional costs such as insurance, fuel and maintenance.
Once you have that insight, you can then start comparing different financing options. Utilise online tools or consult a trusted provider to calculate your monthly repayments, interest rates and total costs for the term of the agreement. When you have narrowed your options down, be sure to read the terms of each carefully to avoid any hidden or unexpected fees.
Navigating the cost of living crisis is tough, but it doesn’t mean you need to put your life on hold. A smarter approach to car finance could help you move forward confidently in 2025. If you need help finding the best rates for your new vehicle, Car Finance 247 is here to help, so why not take your first steps to a new car with our free car finance calculator?