How Bank of England interest rates affect car finance – What you need to know.

On 7 November 2024, the Bank of England cut its base interest rate from 5% to 4.75% [1,2]. This marks the second rate cut of the year, following an earlier reduction from 5.25% to 5% in August 2024 [3].

Key facts at a glance:

• On November 7th 2024, the Bank of England cut its base rate from 5% to 4.75%, the second cut this year

• Earlier in August 2024, rates dropped from 5.25% to 5% before holding steady in September

• Lower interest rates can reduce borrowing costs, meaning cheaper car finance and lower monthly repayments

• Experts are split, with some predicting further rate cuts, while others expecting caution depending on inflation and wage growth

• Car buyers benefit from lower finance rates making new cars more affordable, while used cars still offer strong value – especially with an extended warranty

Why have interest rates changed?  

Here’s a quick recap of how we got here: 

• August 2024: Rate cut from 5.25% to 5%

• September 2024: Rate held steady at 5% [4]

• November 2024: Another cut, taking the base rate to 4.75%

The latest reduction reflects market expectations, but what happens next is still uncertain.

Some experts predict further cuts, while others expect the Bank to take a more cautious approach, watching inflation and wage growth closely.

What does this mean for car finance? 

If you’re considering buying a car, lower interest rates can have a direct impact on your car finance options.

• Lower finance costs

With the base rate down, lenders are likely to offer more competitive finance deals, which could mean lower monthly repayments on car loans.

• Potential for more cuts

If interest rates fall further, financing may become even more affordable in the coming months.

• Used car savings

While new car finance becomes attractive, the used car market remains a strong option. Buying out rights avoids finance altogther, and with a car warranty you’ll still have protection against unexpected repair costs.

How to make the most of lower interest rates:

• Shop around for the best car finance deals

Lenders may adjust their offers in response to the Bank of England’s rate cut, so comparing options means you don’t miss out

• Reassess your budget

Lower repayments might make previously unaffordable cars accessible – but don’t forget to factor in insurance, fuel and warranty cover

• Stay informed

With the possibility of further cuts, keeping an eye on future Bank of England announcements will help you decide whether to buy now or wait

Final thoughts:

With interest rates now at 4.75%, buyers could benefit from lower finance costs and better affordability when purchasing a car. However, the right choice depends on your circumstances, budget, and whether further rate cuts happen.

At Warrantywise, we always recommend combining smart financial planning with extra protection. An extended car warranty can give you peace of mind against costly repairs, so you can enjoy your now or used car without worry.

If you’re unsure how much to spend, take a look at our guide How much of your salary you should spend on a new car.

References:

[1] Bank of England cuts interest rates to 4.75% – but mortgages still set to rise – The Independent 8th November 2024

[2] Bank of England cuts interest rates to 4.75% – MPC meeting – Money Week 7th November 2024  

[3] Monetary Policy Report – Bank of England November 2024

[4] Bank of England base rate and your mortgage – Natwest