Last year, the financial situation in the world was full of challenges, however, this did not prevent the Latvian car market from achieving record high results – last year more than 21 thousand new cars1 were registered, of which almost half or 44% were purchased without loans. The number of used car leasing transactions has also increased – by 7.3%. Luminor’s observations show that, when buying used cars, citizens more often choose to use consumer loans compared to leasing. Raivo Bāle, manager of Luminor Līzings, explains the trends in the car market and highlights the fact that, taking into account the forecasts for EURIBOR reduction, leasing is often the most advantageous choice for the buyer in the long term from the point of view of the total cost of financing.
A record year in the car market
The year 2023 stood out with a record high number of registered passenger cars in the last 17 years – 21,146 new passenger cars were registered, which is 10.6% more than in 2022. This is facilitated by both the general mood in the economy and the fact that new cars can be purchased at a more affordable price within the framework of various promotions and shorter delivery times. Also, used cars are becoming cheaper because their supply is increasing, thus increasing the possibility of buying them without borrowing money in leasing or credit, but paying from your savings.
“Car buying habits have been affected by the relatively high interest payments due to the rapid increase in EURIBOR. If previously more than 60% of the new vehicles purchased in Latvia were purchased on lease, now this proportion is only 55%. This points to the fact that cars are becoming more affordable in terms of price, giving you the opportunity to buy them without borrowing and saving on interest payments on the loan in the long run. It is an interesting fact that 41% of individuals who buy a new car do so from their own funds without a loan,” explains Raivo Bāle, manager of Luminor Leasings.
Growth is driven by car sharing and company fleets
The number of registered cars has increased mainly due to the renewal and expansion of company car fleets – market data indicates a 14% increase compared to 2022. On the other hand, private individuals registered 4% more cars than last year, indicating growth in this sector as well. Luminor’s observations show that various car-sharing offers are used surprisingly well, and the demand for them continues to grow. This trend is likely to contribute to gradual changes in the distribution of car owners (how many are owned by individuals and how many are owned by companies) and, as the expert predicts, the total number of cars registered in Latvia may decrease at the same time, as a number of families give up the second family car in favor of a shared car. It also has a positive effect on the average age of cars in Latvia, as the typical age of a shared car does not exceed a couple of years.
For used cars bconsumer credit is more often chosen than leasing
Along with the rise of EURIBOR, citizens increasingly choose a car or consumer loan to finance the purchase of a used car due to the fixed interest rate. Such financing does not require a down payment or CASKO insurance. However, at the moment, along with economists’ forecasts of EURIBOR reduction, many car buyers are faced with a dilemma – whether to choose a loan for financing or a lease with a variable EURIBOR rate. “From the point of view of financing costs, in most cases, leasing is the most profitable choice for a car buyer. The down payment for car leasing starts from 10% of the purchase price of the vehicle, but by making a larger down payment, the lessee will have lower interest expenses in the long term,” highlights financial expert Raivo Bāle. Also, a larger portion of the down payment reduces the overall borrowing burden of the lessee, thereby reducing potential additional expenses and risks that may arise at a high EURIBOR level.
Luminor
