Car buyers get things in proportion

Household budgets might be stretched, but it seems those on the lowest salaries are still prepared to the splash the cash when it comes to purchasing a new motor.
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New research from carwow.co.uk, the online platform for buying new cars, reveals that some of the country’s poorest regions are among those willing to spend the most on a new vehicle, when looking at the cost relative to their annual salary. According to its data, people living in Tyne & Wear look to spend a greater percentage of their annual income on a new car than anywhere else, and are prepared to fork out 87% of their salary to buy a set of wheels. This is despite the fact that incomes in this region are typically 20% lower than the national average. Other areas of the UK where people are prepared to spend a substantial amount of their income on a new car include the Isle of Wight, Lincolnshire, West Midlands and Merseyside. Motorists in these areas are willing to spend 83%, 82%, 82% and 81% of their annual salary respectively on a new car.

Cautious Cotswolders

In contrast, Oxfordshire is the county with the lowest ratio of income to car value, with drivers typically looking to spend around half of their annual income (51%) on a new vehicle.
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Surprisingly, even though Oxfordshire residents have an average annual wage two-thirds higher than those in Tyne & Wear, the average car value looked at by those in Oxford was £700 less than their counterparts in the north east. Other counties where the value of new cars people were looking to buy were the lowest, relative to average annual income, include Surrey at 53%, Buckinghamshire at 54% and Berkshire at 57%. The research found that motorists from Berkshire are prepared to spend the most on a new car, typically searching for vehicles costing £26,993, which is 11.7% higher than the national average. However, if you consider that Berkshire residents have an average income that’s actually more than a third higher than the national average, it’s not hard to see why they’re prepared to dig a little deeper for a new car.

Finance and funding

Few people, regardless of their income, can easily lay their hands on a substantial lump sum to pay for a car upfront, but the various financing options available have made it easier for all motorists to cover costs.
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Dealership finance is often a popular way to pay for a new motor. However, although many showrooms offer attractive 0% finance deals, you’ll usually have to stump up a few thousand as a deposit, which is unlikely to suit all but the wealthiest. Personal leasing is another way to buy a new car, and you don’t have to put down such a big deposit. But this kind of scheme has its drawbacks too. Although you’ll be given the option to upgrade to a new model every few years, you won’t ever actually own the car as you are basically leasing it from the manufacturer.

Loan ranges

If you want to own your car outright, then one of the cheapest ways to fund your purchase is likely to be a personal loan. Representative annual percentage rates (APRs) have fallen in recent months, with the average personal loan rates for loans of £7,500 now at a 16-month low of 5.71%. Hitachi, for example, is offering a rate of 4.3% on borrowing of £7,500 up to £15,000. Monthly payments at this rate if you were to borrow £7,500 over a five year period would cost £138.85, making this one of the most affordable ways to buy a car. Once you’ve finished repaying the loan, the car is yours to keep, sell on, or part-exhange when you want to buy another one. Remember, however, that the best loan rates are reserved for those with impeccable credit histories, to you might be charged a much higher rate of interest if your credit rating is less than perfect.

Highs and lows

James Hind, founder of carwow, said: “It seems that both higher and lower earners view having a vehicle as a necessity, rather than a luxury item, and are willing to pay what is necessary to own one. “We also have to consider the impact of financing - most people purchase their cars with some kind of finance, making the cost of vehicles more manageable. “Perhaps this is why people are willing to part with more money for a new car, because if people don’t have a huge hit to their bank balance initially and can spread the cost out, a new car is within reach."

Rocketing registrations

Confirmation that car sales are booming has come from industry trade body the Society of Motor Manufacturers and Trades, which has noted that new car registrations rose 8.2% in April to 176,820 units, the 26th consecutive month of growth. Volumes for the year-to-date reached 864,942, an increase of 12.5%. SMMT expects more than 2.4 million registrations in 2014.
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