The number of new and used cars sold on finance rose year-on-year by 6% and 20% respectively in January, beating market expectations, new figures have shown.
A report from the Finance and Leasing Association (FLA) found that the growth was boosted by a rise in the number of dealers offering low and 0% motor finance schemes in the month.
The trade association said that the promotions helped offset the impact of the VAT hike and attracted more buyers - a development that will have been noted bycar insurance companies.
The findings of the report reveal that dealer finance continues to be the most popular way to purchase a new car, with more than half (53%) of buyers choosing this option last year.
Paul Harrison, head of motor finance, FLA, said: "New and used car finance sales in January exceeded market expectations.
"In addition to the flexibility offered by dealer finance, there were good, low-interest rate deals available which contributed to the unexpected growth."
But he added: "January's figures should, however, be viewed with caution, as the economic outlook in 2011 remains uncertain."
Mr Harrison said that more and more customers are opting personal contract purchase (PCP) agreements because of the flexibility they provide.
He added: "Customers do not have to commit to buying the vehicle outright if they do not want to and can hand the keys back and walk away once all payments have been made."
PCP deals accounted for 60% of the credit advanced for new cars in 2010.
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