New car finance deals peaked at a record monthly high in March, data revealed yesterday, amid worries over British household debt levels.

A week after the UK's chief financial watchdog issued a warning on the dangers of easy credit, figures from the Finance & Leasing Association showed that credit for motor purchases peaked at £3.6billion - thanks mainly to a 13 per cent jump in  Personal Contract Purchases compared to a year previous.

PCPs, under which buyers effectively rent a car for up to four years, are currently on the radar of both The Bank of England and the Financial Conduct Authority.

Last month, the FCA launched a probe into the UK car finance market over concerns about a 'lack of transparency, potential conflicts of interest and irresponsible lending in the motor finance industry'.

Consumer groups have also urged motorists to think carefully before committing to PCP deals.

'Today's figures are a further indication of the popularity of car finance deals,' said Joanna Elson, chief executive of the Money Advice Trust - the charity that runs National Debtline.

'For many consumers this offers access to a car that would otherwise be unaffordable, however it is important that the affordability of offers is fully assessed and that consumers are clear on the terms so that they know from the outset what they are committing to, and can plan accordingly.'

Alex Buttle, director of car buying website Motorway.co.uk, has warned of the 'perfect storm' with the majority of car finance deals done on PCPs and diesel vehicle prices falling.

He said: 'The car finance industry might claim they are lending responsibly, and that may well be the case, but they can't control car values.

'Why is that a problem? Well we're in the midst of a diesel vehicle crisis, and diesel prices look vulnerable. In fact, our figures suggest diesel prices could fall ten to 15 per cent over the next 12 months.

'Car finance deals, of which many will be diesel cars, are at record levels as diesel car values are starting to fall in the wake of some pretty negative news.

'We could be looking at a perfect storm, as the majority of car finance deals are PCPs, which are calculated according to how the car depreciates, at a time when car values could start falling at a rate of knots.

'There could be a lot of diesel car owners concerned about the car finance deals they've just taken out and worried that the value of their car will drop and put them in negative equity territory at the end of the deal term.'

New business was also up ten per cent in value on a three per cent volume increase during the first quarter of 2017 versus a year earlier, said the FLA.

Overall, including used cars, consumers spent a record £32.5bn on car finance deals in the year to March.

Geraldine Kilkelly, the FLA's head of research and chief economist, said: 'The first quarter of 2017 saw consumer car finance new business volumes increase in line with the industry's expectations of single-digit growth for the year overall.

'The percentage of private new car sales financed by FLA members has remained steady at 86.5 per cent since the beginning of 2017.'