The 2024 automotive market presents unique opportunities when considering a car to buy on finance, despite significant changes in inflation rates and pricing. Current market conditions offer both challenges and possibilities, with interest rates and vehicle costs creating a complex landscape for potential buyers. Understanding these market dynamics is essential for making smart purchasing decisions, as buyers must carefully evaluate financing options while considering their long-term financial health.
Car interest rates and market conditions
The automotive sector shows promising signs of price stabilisation, with new vehicle prices declining for eight consecutive months. Average transaction prices have decreased by nearly 1% compared to the previous year, whilst dealer incentives have reached a two-year high at 6.7% of the average transaction price. This shift indicates a more favourable environment for buyers, though the impact varies significantly based on individual circumstances and credit profiles.
These changes reflect broader economic trends, with dealers adapting their strategies to maintain sales momentum. The increased incentives, averaging approximately £2,400 per vehicle, represent a significant opportunity for buyers to secure better deals. However, these benefits must be weighed against the still-high interest rates affecting monthly payments. Market analysts suggest this trend could continue throughout 2024, potentially creating more favourable conditions for well-prepared buyers.
Why are car interest rates so high?
The current elevated interest rates stem from ongoing inflation control measures. Despite a recent 50-basis-point reduction to 4.75-5%, rates remain notably above historical averages. This situation affects borrowers differently based on their credit profiles:
- Prime borrowers (credit score above 700) face increased costs but retain access to competitive rates and preferential terms
- Non-prime borrowers (credit score 620-699) experience more significant impacts on borrowing costs and may need larger down payments
- First-time buyers encounter additional challenges in securing financing and often require co-signers
- Subprime borrowers (credit score below 620) face the highest rates and most stringent requirements, often needing specialised lenders
The average interest rate for new car loans currently stands at 7.18%, whilst used car loans average 11.93%. These rates represent a significant premium over recent years, directly impacting affordability and purchasing decisions for many consumers. The disparity between new and used car rates reflects the increased risk associated with older vehicles and typically lower credit scores in the used market.
Higher inventory, lower prices
Market dynamics demonstrate classical supply-and-demand principles, with new vehicle inventory showing a remarkable 51% year-over-year increase. This surge in availability has created several notable effects:
- Enhanced negotiating power for buyers at dealerships, particularly for less popular models
- More competitive pricing across vehicle segments, especially in the mid-range market
- Increased dealer incentives and special offers, including extended warranty options
- Greater selection of available models and configurations across all price points
- Reduced waiting times for popular vehicles, even in premium segments
- More flexibility in colour and feature choices
The increased inventory levels, now reaching 2.84 million units, represent the highest point since late 2020. This abundance of choice provides buyers with significant leverage in negotiations and helps maintain downward pressure on prices across most segments. Many dealerships report having more than 100 days’ supply, creating urgency to move existing stock.
Diverse market complicates price picture
The market exhibits clear segmentation, with 41.2% of vehicles transacting below £40,000 and 26.4% above £60,000. Full-size premium vehicles continue to influence average transaction prices upward, whilst compact vehicles provide more affordable alternatives. This divergence creates distinct opportunities and challenges across different market segments, particularly affecting buyers with varying budgetary constraints.
Popular compact models often transact at prices 23% below the national average, offering significant value for budget-conscious buyers. However, the high-volume sales of premium vehicles, particularly in the full-size segment, continue to push overall market averages higher, creating a potentially misleading picture of vehicle affordability. The middle market, representing vehicles between £40,000 and £60,000, has seen its share decrease from 37.9% to 32.5% over the past year.

EV prices and market dynamics
Electric vehicle prices have demonstrated volatility whilst generally trending lower than their 2022 peak. Average EV transaction prices maintain a 17% premium over conventional vehicles, though this gap has narrowed from 21% a year ago. The shifting landscape reflects:
- Increased competition in the EV segment driving innovation and cost reduction
- Growing manufacturer incentives and government support programmes
- Improved production efficiency reducing manufacturing costs
- Enhanced model availability across price points and vehicle categories
- Developing charging infrastructure supporting broader adoption
- New battery technologies improving range and reducing costs
EV incentives currently run much higher than the overall market, averaging 12.4% of the transaction price, representing significant savings opportunities for interested buyers. The market has seen particular growth in the entry-level and mid-range segments, making electric vehicles more accessible to mainstream buyers.
How to get a deal when interest rates are high
Different buyer profiles require distinct strategies for optimal outcomes. For those with good credit, focusing on manufacturer incentives and special financing offers proves most effective. Buyers without credit history should consider certified pre-owned vehicles and seek relationships with financial institutions. Those with less-than-perfect credit benefit most from building substantial down payments and exploring multiple lender options.
Key strategies for success include:
- Shopping multiple lenders before visiting dealerships to understand available rates
- Understanding your credit score and its impact on lending terms
- Calculating total ownership costs beyond monthly payments
- Considering longer-term financial implications of various financing options
- Exploring all available incentive programmes and timing purchases accordingly
- Building relationships with local credit unions and community banks
- Maintaining detailed records of all quotes and offers
Market projections and rate expectations
Expert analysis indicates interest rates will likely remain elevated through early 2025, with gradual reductions anticipated. Vehicle prices show encouraging signs of stabilisation, with used car prices declining 2.2% year-over-year and new car prices holding relatively steady. These trends suggest a gradually improving market for buyers, though timing remains crucial.
Inflation metrics continue to influence market conditions, with recent data showing a 3.5% year-over-year increase, affecting both pricing strategies and financing options. This persistent inflationary pressure suggests continued challenges in the near term, despite some positive indicators. Market analysts predict a potential shift towards more buyer-friendly conditions as inventory levels continue to rise and competition among dealers intensifies.
Timing your purchase decision
The current market presents unique opportunities through increased inventory and dealer incentives, despite high interest rates. Buyers should prioritise:
- Total cost of ownership calculations including:
- Monthly payments and interest costs
- Insurance premiums and coverage requirements
- Maintenance schedules and expected costs
- Fuel efficiency considerations and energy costs
- Depreciation projections and resale value
- Credit profile optimisation through:
- Regular credit monitoring and score improvement
- Debt management and reduction strategies
- Payment history improvement and documentation
- Credit utilisation management
- Relationship building with financial institutions
- Market timing considerations based on:
- Seasonal sales patterns and promotional cycles
- Model year changeovers and inventory clearance
- Economic indicators and interest rate projections
- Regional market conditions and local competition
- Personal financial readiness and stability
Success in today’s automotive market requires careful consideration of these various factors, alongside a clear understanding of personal financial circumstances and market conditions. By taking a methodical approach and remaining patient, buyers can find opportunities even in challenging economic conditions. The key lies in thorough preparation, understanding available options, and maintaining flexibility in choice whilst remaining firm on budget constraints.