Car Finance predictions for 2012

• Date: Monday, January 9, 2012

It will come as no surprise that 2012 doesn't offer too much hope for the new car market.

Motorists young and old are likely to still find it difficult to find expendable income to finance the purchase of a new vehicle. As a result, the number of cars bought on car finance is expected to continue an upward trend this year, as people can't afford to outlay a large lump sum at one time.

More prospective car owners are turning to banks and specialist lenders to offer some assistance and this market is expected to continue thriving in 2012. Overall, however, second-hand car sales will no doubt continue to be higher than brand new ones.

But it could be better value to buy a new car as the emissions are lower and therefore so is the tax. In comparison, older cars have less eco-friendly engines, meaning they could be more costly to run in addition to being subjected to higher levies.

Those keen on greener, cheaper motoring will be glad to hear that in March, car manufacturer Volkswagen will be releasing its lowest insurance-rated car - the new one litre Up city car.

Starting at just under £8,000 for a basic model, this car could provide some light at the end of the tunnel for car buyers, especially since high car insurance premiums are likely to be a continuing problem in 2012.

Ben Tyte, head of Sainsbury's Car Insurance, reckons car insurance premiums will rise by around 10% this year, which is not good news for motorists.

Young drivers are likely to continue to feel the heat of high premiums, but women especially look set to lose out. This is because following a ruling in March 2011 by the European Court of Justice, insurers will from 20 December 2012 no longer be allowed to use gender as a rating tool for insurance premiums.

At present, young women pay around 40% less for their cover than their male counterparts. This is because young men are statistically more likely to have a fatal road traffic collision than women. But due to the ruling, premiums for young women are likely to start rising by the end of the year so that they are in line with men's.

Meanwhile, one potential solution to high premiums for young drivers, telematic technology, could also start to take off in the insurance industry. This technology monitors how people drive and bases insurance premiums on this. But smart boxes don't just aid premium calculations - they can also act as evidence in the event of an accident on the road.

Although only a few insurers such as the Co-op, Insure the Box and Young Marmalade have already introduced the technology, the AA expects telematic technology to become compulsory in all cars in the future.

The Office of Fair Trading (OFT) is also investigating rising car insurance premiums and is due to complete its market study in the spring. According to the OFT, premiums rose by around 12% between 2009 and 2010 and by a further 9% in the first nine months of 2011. It found this was due to a rise in costs associated with personal injury claims.

However, the increased cost of third party non-injury claims, which include credit hire replacement vehicles and third party repairs, have also had an impact and it's this that the OFT is focusing on.

Finally, another topic of interest will be the price of fuel which is likely to continue rising, although chancellor George Osborne has delayed the 3p increase from January to August.

Note that these are only predictions about what could happen in 2012 - without a crystal ball we can't tell you exactly what will happen.