The impact of Brexit on the car finance industry
4 July 2023
By Joy Pearson
Brexit, the UK's decision to leave the European Union, has been the topic of much discussion and debate since the UK voted to leave the EU in 2016. This decision has had a significant impact on various industries, including the car finance sector. Since the decision was made, there have been changes in regulations, trade agreements, and economic conditions that have affected car finance in the UK. In today's post, we are going to have a look at just what changes, us leaving the EU is really going to have throughout the car finance industry and what kind of world we could be living in.
One of the major impacts of Brexit is the potential increase in interest rates. Following the referendum result in 2016, the value of the pound dropped sharply, leading to a rise in inflation. Resulting in a sharp drop in value against other major currencies, such as the US dollar and the euro. This devaluation of the pound had implications for the economy, particularly in relation to inflation. When the value of the currency decreases, it often leads to higher import costs, which can therefore contribute to inflation. In the case of Brexit, the increased costs of imported good and raw materials due to the weakened pound have been contributing factor to rising inflation in the UK.
In response to inflationary pressures, central banks, such as the Bank of England, may rise interest rates as a means to control inflation. When interest rates rise, borrowing money becomes more expensive, including borrowing for car finance. Higher interest rates mean higher monthly payments and potentially more expensive overall financing costs. With the potential increase in interest rates as a result of inflationary pressures post-Brexit, car finance could become more expensive for consumers. This means that individuals looking for car finance may face higher interest rates, which can impact affordability and the overall cost of financing the vehicle.
Another impact of Brexit is the potential changes in trade agreements. The UK's exit from the EU means that it will have to negotiate new trade agreements with other countries. The new agreements could lead to higher tariffs and taxes on imported cars, making them more expensive. This in turn, could affect the demand for cars and ultimately affect the whole industry. Brexit has also led to changes in regulations that have affected car finance across the UK. For example, the General Data Protection Regulation (GDPR) that came into effect in May 2018 applies to all businesses that process personal data or EU citizens. This has led to increased scrutiny on how car finance companies handle customer data and increased compliance costs.
What's more is that Brexit has also affected the availability of finance options for car buyers. Many lenders have tightened their lending criteria, making it more difficult for some customers to obtain car finance. This is due to the economic uncertainty that Brexit has caused, with lenders becoming more cautious about who they lend to. Despite the challenges, the car finance industry in the UK is adapting to the changes brought about by Brexit. Many companies are investing in technology to streamline their processes to improve customer experience. Others are offering more flexible finance options to attract customers in a most cautious market.
With this in mind, Brexit has had a significant impact on the car finance industry. The potential increase in interest rates, and new regulations have all affected the industry. However, the industry is adapting to the changes, and it is essential for car buyers to stay informed about the changes to make informed decisions about car finance.