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 * Car finance for young drivers and students


CAR FINANCE FOR YOUNG DRIVERS AND STUDENTS

Young drivers, including students and those who are working, may find it more
difficult to get car finance because of their limited credit history. However,
you can do certain things to improve your chances.

Rhiannon Philps Last updated on 13 July 2021.


WHAT'S INSIDE

 1. Why do young drivers struggle to get car finance? Jump
 2. Car finance for young drivers Jump
 3. Other finance options Jump
 4. Can I get car finance with a provisional licence? Jump
 5. How can I improve my chances of approval for car finance? Jump
 6. Compare car finance Jump

Show more

When you’re looking to buy your first car, you may not have the money available
to pay for one outright. You might ask your family to help towards the cost, but
you could also consider car finance.

Car finance is a type of loan which allows you to spread the cost of a car over
a number of years.

While car finance can be a useful way to help you buy a car, through no fault of
their own, young drivers and students may find it more difficult to get
accepted. You can’t get car finance for 17 year olds because you can only apply
for credit once you’re 18 but, it is possible for young drivers aged 18 and
above to get car finance.

Your credit score and income are two of the most important checks lenders make
when assessing car finance applications, and young people may struggle to fully
satisfy the requirements of the provider.

Read on to find out more about getting car finance for young drivers and
students and what you can do to improve your chances of approval.


WHY DO YOUNG DRIVERS STRUGGLE TO GET CAR FINANCE?

There are several reasons why young drivers can find it more difficult to get
accepted for car finance. These include:

 * Having little or no credit history. Lenders will look at your credit score
   when you apply for finance but, because you can only take out credit once you
   turn 18, young drivers may not have had the time to build up their credit
   score to a level that would satisfy the lender.
 * Not having an income, or having a low or irregular income. Many young people
   may have part-time jobs or work in the gig economy, and some will be relying
   on their student loan as their main source of income. Car finance providers
   will want to lend to people with a stable income that can comfortably afford
   to repay the loan, so they may be more wary about lending to young people who
   are not in full-time employment.
 * Not having a deposit. Some younger people may not have as much money saved up
   for a deposit, which can make it more challenging to get the best car finance
   deals.


CAR FINANCE FOR YOUNG DRIVERS

After your eighteenth birthday, as a young driver you could be eligible to buy
your first car on finance.

However, although it's technically possible to apply for credit and purchase a
car on finance after you turn 18, this doesn’t necessarily mean you’ll be
accepted. You will need to have built up a good credit history and prove that
you will be able to afford the repayments to demonstrate to finance companies
that you aren’t a high risk borrower.

Some lenders may be reluctant to lend to young drivers with a limited credit
history and some may only offer finance to those aged over 21.

There are a few different car finance options available including:


HIRE PURCHASE

With a hire purchase agreement you can spread the cost of repayment over a
number of years, after paying a deposit.

At the end of the contract, if you have kept up with monthly repayments to repay
the total amount of the loan, you can choose to return the vehicle or own the
car by paying an “option-to-purchase” fee.


CONDITIONAL SALE

A conditional sale is very similar to a hire purchase agreement. It’s the same
in every respect except you are obliged to own the car after you have repaid the
costs. The car is sold to you on the condition that you repay the lender the
total amount lent to you, and after the last payment you will automatically
become the owner.


PERSONAL CONTRACT PURCHASE

With personal contract purchase (PCP) you make monthly repayments over the
contract term; however you only pay part of the total cost of the vehicle. At
the end of the contract term you have the option to pay off the full amount in
what’s known as a balloon payment, after which you will own the car.
Alternatively, you can return the car at the end of the period without making
this payment.


PERSONAL LEASING

Car leasing, also called personal contract hire, is typically available on brand
new cars and runs for two to four years. You’ll return the car to the leasing
company when the lease ends. If you only need to drive for a set number of
years, or want to have the flexibility to regularly change cars this might be a
good option for you.

There are also some specialist car finance providers that may be able to offer
finance to those with a poor or limited credit history, but bear in mind that
these often come with higher interest rates.


OTHER FINANCE OPTIONS

Car finance isn’t the only way to buy a car. For example, you may want to
consider some alternative options like:


PERSONAL LOAN

Loans for young people are available, so you could apply for a loan if your
credit rating is high enough. The problem with loans as a young person is you
may not qualify for a loan or only be offered a small amount, potentially with
quite high interest rates too.

If you do have a good credit rating, a loan could be a cheaper option than hire
purchase or personal contract purchase.

» COMPARE: Unsecured personal loans


GUARANTOR CAR FINANCE

Guarantor car finance usually comes in the form of a personal loan, rather than
a traditional hire purchase or PCP agreement, though you may find some options
for these as well.

A guarantor is someone with a good credit rating who is added to your
application, with the responsibility of repaying your loan if you are unable to.

Applying for car finance with a guarantor could be a possible option for young
people with limited credit histories who may otherwise have struggled to get car
finance, as the guarantor minimises the risk to the lender.

If you are a parent, friend or relative considering becoming a guarantor,
remember that if the applicant cannot make a repayment, the responsibility will
fall to you and if both you and the applicant cannot pay, all parties will have
their credit scores adversely affected.


JOINT APPLICATION

Some lenders will allow you to make a joint application for a car finance or
loan with another person. As with guarantor finance, having someone else on the
credit agreement can make lenders more prepared to offer finance to young people
with limited credit histories.

Bear in mind that both parties are responsible for paying the loan, so any
missed payments could affect both credit scores.


CAN I GET CAR FINANCE WITH A PROVISIONAL LICENCE?

Many lenders will require you to have a full driver’s licence to get car
finance, but there are some that will lend to drivers with a provisional
licence. However, there may be a limit on the amount that provisional licence
holders can borrow.

Because many drivers with provisional licences are young, it will also be their
lack of credit history and possible low income that will make some lenders less
willing to offer finance.

But, if you have a good credit score and you have a good income that means you
can comfortably afford the repayments, some providers will lend to you even if
you haven’t passed your test.

You may stand a better chance of getting car finance with a provisional licence
if you apply with a guarantor, or you may prefer to wait until you pass your
test before applying.


HOW CAN I IMPROVE MY CHANCES OF APPROVAL FOR CAR FINANCE?

There are some things that young drivers and students can do to boost their car
finance application, including:


BUILDING UP YOUR CREDIT HISTORY

When you’re young it can be hard to build up a credit history, but there are
some things you can do to help your score. For example, you can register to
vote, open and use a current account without going into your overdraft, pay
bills on time (including your mobile phone), and repay other forms of debt like
your credit card.

However, because lenders will make a hard credit check when you apply for
credit, to assess your affordability and determine the level of risk you
present, you should limit the number of applications you make. A hard credit
check leaves a permanent mark on your credit file, and too many applications can
damage your score.

Only apply for credit if you are confident you can manage repayments.

» MORE: Ways to improve your credit score


INCREASING YOUR INCOME

This won’t be easy or possible for everyone to do, but you will improve your
chances of getting car finance if you have a good income. For example, you could
get a part-time job to supplement your student loan to make the lender more
confident that you will have sufficient cash coming in to make your repayments.


PUTTING DOWN A BIGGER DEPOSIT

If you manage to save up a bigger deposit, you won’t need to borrow as much
through car finance. Because you would borrow a smaller sum, the lender may be
more willing to approve your application.


BUY A CHEAPER USED CAR

As with the above point, you won’t need to borrow as much if you choose a
cheaper car. If you want to finance an expensive, brand-new car, the lender may
be less likely to offer you a loan because the payments are likely to be more
expensive and therefore could be unaffordable.


COMPARE CAR FINANCE

To get the best deal available to you, it’s important to compare car finance
deals until you find one which is suitable for your requirements and your
financial circumstances.

Car dealerships and manufacturers won’t necessarily offer you the best terms for
car finance, so you shouldn’t necessarily go for the first option offered to
you, or go into an agreement unprepared. Instead, take the time to understand
your options and only apply for finance if you are confident you will be
successful and will be able to make the repayments, alongside the other costs of
running a car.

» COMPARE: Find car finance deals

Image source: Getty Images

About the author:

Rhiannon is a financial writer for NerdWallet, with a particular interest in
personal finance and insurance guides for consumers. Read more

DIVE EVEN DEEPER


RANKED: THE MOST RECKLESS BATMAN BEHIND THE WHEEL

by Connor Campbell

Batsuit. Batmobile. Batbreakdown cover? Bruce Wayne isn’t among Gotham’s best
drivers, and could certainly benefit from a solid level of personal cover. But
which Batman is the most reckless behind the wheel? Find out the full rankings,
from Bale to Batfleck and beyond, below.


FUEL SHORTAGE: HOW TO SAVE FUEL WHEN DRIVING

by Brean Horne

Petrol stations across the UK have begun to close their doors as fuel supplies
at the pump dwindle. Read on to find out how fears of a fuel shortage have
affected fuel supplies at petrol stations and simple steps you can take to save
on fuel in the long term.


WHAT IS A CAR WARRANTY AND WHAT DOES IT COVER?

by Rhiannon Philps

A car warranty covers the cost of the repair bill if you need to fix a problem
with your car. It will often cover parts including the engine, gearbox,
suspension, brakes and steering, although details will differ between policies.

Compare Car Finance Explore Loans Articles

If you have any feedback on this article please contact us at
UK-Editorial@nerdwallet.com

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