It is expected that car buyers in the UK will soon be able to access cheaper financing as the unsecured personal loan market recovers from the recession. After a couple of years of more expensive car finance, the return to using cheaper forms of credit will please those looking for a competitive financing package for their car purchase.

According to the independent business analyst Datamonitor, the unsecured personal loans market is predicted to experience year-on-year growth of 5.6 per cent, as opposed to the slower growth of 1 per cent for car finance, and it is expected that consumers will show a greater preference for unsecured personal loans instead of car finance.

Roderick Logan, analyst at Datamonitor, said During the recession car finance became more popular, mainly because unsecured loans were so difficult to come by for the majority of consumers. There were very few options open to people who were unable to use cash and although car finance is an expensive way of borrowing, there was little alternative.

Datamonitor also found that, even with unsecured loans difficult to get, only about a quarter of current car buyers are using traditional methods of car financing, meaning that buyers are reluctant to opt for car finance.

Logan added that As the consumer credit market improves, the car finance industry will face significant hurdles to ensure growth. Unsecured personal loans will once again be their biggest competition, so making it more attractive for consumers to arrange everything through the dealership will become a priority.