When managing your day-to-day finances, the cost of living affects everything you do. Balancing everything between paying your bills, buying groceries, to just enjoying your life, the cost of living affects everything. But, it’s something you rarely think about. You just do it!

That is, unless there’s a cost of living crisis. Then you can’t seem to escape talk of how our day-to-day finances are being affected.

What is a cost of living crisis?

A cost of living crisis is when the price of goods and services spikes sharply, outpacing increases in wages. So it costs more money to do the basic things like heat your house, fuel your car, or pay for groceries at the supermarket.

While this is often reflected in the level of inflation, it’s normally as a result of an external factor having a huge impact on the economy. In this case, we have the war in Ukraine, an energy and fuel supply crisis, and also the lingering effects of the global pandemic, all working together.

How will it affect the car finance industry?

The current increased cost of living doesn’t mean that you can’t get a car finance package. What it does mean is you will have to be more careful with how you examine your budget to see how much you can afford. With bills predicted to rise towards the end of the year, it’s a good idea to be more conservative with how much you can borrow.

Lenders will become more cautious

One thing that you will see is that finance providers will be more cautious with their financial checks when you apply. Any FCA regulated provider already has to undertake some pretty vigorous checks on anyone who applies for finance with them, to ensure that the potential customer can afford the package they are taking out. But in this period, it’s going to be well worth your time ensuring your finances and credit report are in good condition. Try consolidating loans or paying off any outstanding packages that you have already taken out if you can afford to do so.

But if you can afford it, there are better deals

Because the increased cost of living at the moment will put some people off applying for finance, if you are in a position where you can afford to take a car finance package, then you can expect there to be greater competition between providers to seal your business. Whether that’s a lower rate of interest, allowing you to lend more, or other perks such as free breakdown cover or servicing, it’s a good time to make the most of the greater demand for your custom.

Less used cars on the market

A knock-on effect of the cost of living increase is that many people will be delaying their search for a new car. That means there will be less used cars entering the market, whether as a part exchange or being sold privately to fund the purchase of a new car. That means prices on used vehicles can go up. Make sure you use a vehicle search that covers the whole country, not just local dealers. The wider the search area, the more vehicles there will be available.

Should I apply for car finance now?

If you have budgeted your finances correctly and know exactly how much money you can afford to spend on car finance each month, then there’s no reason why you can’t apply for car finance now. Just be careful to compare different packages available to you and either search for the car you want in advance or be open to different makes and models.