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Tip: Consider adding a parent or guardian as a named driver on your insurance. This can often reduce premiums significantly for young drivers.

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What Are the Different Types of Car Finance for Young Drivers?

As a young driver, you have several options when it comes to financing your first car:

  1. Personal Contract Purchase (PCP): PCP is a popular choice among young drivers. You pay an initial deposit followed by monthly instalments for a fixed term. At the end of the contract, you can return the car, make a final payment to own it, or trade it in for a new vehicle.
  2. Hire Purchase (HP): With Hire purchase agreement, you pay a deposit and then make fixed monthly payments over an agreed term. Once you've made all the payments, you own the car outright. This option is ideal if you want to eventually own the vehicle.
  3. Personal Loan: A personal loan allows you to borrow a fixed amount from a bank or lender, which you then repay in monthly instalments over a set term. You own the car from the start, giving you more flexibility than other finance options.
  4. Guarantor Loan: If you have a limited credit history or a low credit score, a guarantor loan could help you secure car finance. A parent or guardian with a good credit history co-signs the loan credit agreement, agreeing to make repayments if you cannot.

How to Qualify for Car Finance as a Young Driver

Qualifying for car finance as a young driver can be challenging, but there are steps you can take to improve your chances of approval:

  1. Build your credit score: A good credit score is essential for securing competitive car finance deals. Start building your credit by taking out a credit card, using it responsibly, and paying off the balance in full each month.
  2. Save for a larger deposit: The higher your initial deposit, the lower your monthly payments and the more likely you are to be approved for finance. Aim to save at least 10-20% of the car's value.
  3. Prove your income: Lenders want to see that you have a stable income and can afford the monthly repayments. Provide proof of employment, such as payslips or a contract, and bank statements showing your income and outgoings.
  4. Choose an affordable car: Be realistic about your budget and choose a brand new car or old car that you can comfortably afford. Consider factors such as insurance costs, fuel efficiency, and maintenance expenses.
  5. Consider a co-signer: If you have a limited credit history or a low income, asking a parent or guardian to co-sign your loan can improve your chances of approval. However, make sure they understand the financial responsibility they're taking on.

Did you know: Some lenders offer specific 'young driver' finance packages. These may have more lenient criteria but compare the overall costs carefully.

What Credit Score is Needed for Car Finance in the UK?

There is no universal minimum credit score for car finance in the UK, as each lender has its own criteria. However, a higher credit score will generally improve your chances of approval and help you secure better interest rates.

If you have a low credit score or a limited credit history, don't despair. Some lenders specialise in car finance for young drivers with bad credit. These lenders may offer higher interest rates, but they can help you get on the road while building your credit score.

What Credit Score is Needed for Car Finance in the UK

Refinance Car Loan: Lower Your Rates Today

Refinancing can save you money in the long run and allow you to adjust the loan term to fit your current financial situation.

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Can You Finance a Car for Your Child?

As a parent, you may be wondering if you can finance a car for your child. The answer is yes, but there are a few things to consider:

  1. Ownership: If you take out the finance in your name, you'll be the legal owner of the car, not your child. This means you'll be responsible for making the repayments and dealing with any issues that arise.
  2. Insurance: Young drivers typically face higher insurance premiums due to their increased risk profile. Consider adding your child to your own insurance policy or shopping around for the best deals on standalone policies.
  3. Affordability: Make sure you can comfortably afford the monthly repayments and associated costs, such as insurance, fuel, and maintenance. Don't overstretch your budget or put your own financial security at risk.
  4. Teaching responsibility: If you do finance a car for your child, use it as an opportunity to teach them about financial responsibility and budgeting. Consider having them contribute to the monthly payments or cover the cost of fuel and insurance.

Remember: If a parent is considering financing a car for their child, they should be aware that missed payments could affect their own credit score.

What Are the Cheapest Cars to Insure for Young Drivers?

Insurance is one of the biggest expenses for young drivers. To keep costs down, consider choosing a car that's cheap to insure. Some of the most affordable cars for young drivers include:

  1. Volkswagen Polo
  2. Ford Fiesta
  3. Vauxhall Corsa
  4. Renault Clio
  5. Fiat 500

These cars are typically cheaper to insure due to their smaller engines, lower repair costs, and good safety ratings. However, always compare insurance quotes for specific models before making a decision.

Tip: Look for cars in lower insurance groups. These are typically cheaper to insure for young drivers.

Can a Non-Driver or Learner Driver Get Car Finance

Can a Non-Driver or Learner Driver Get Car Finance?

While it's possible for a non-driver or learner driver to get car finance, it can be more challenging. Most lenders require you to have a full UK driving licence to qualify for finance.

If you're a learner driver, you may be able to get finance if you have a guarantor or co-signer with a full licence. Some lenders may also offer specialist learner driver finance, but these deals often come with higher interest rates.

If you're a non-driver, it's unlikely you'll be able to get car finance in your own name. However, you could consider financing a car for a family member or partner who does have a full licence.

Why Would You Be Refused Car Finance?

There are several reasons why you might be refused car finance as a young driver:

  1. Poor credit history: If you have a low credit score or a history of missed payments, lenders may view you as a high-risk borrower and refuse your application.
  2. Insufficient income: Lenders need to see that you have a stable income and can afford the monthly repayments. If your income is too low or you have a lot of existing debt, you may be refused finance.
  3. Age of the vehicle: Some lenders have restrictions on the age of the car they'll finance. If you're looking to finance an older vehicle, you may struggle to find a lender willing to approve your application.
  4. Incomplete application: Make sure you provide all the necessary documentation and information when applying for car finance. An incomplete application may be refused outright.

If you're refused car finance, don't lose hope. Take steps to improve your credit score, save for a larger deposit, and shop around for specialist lenders who may be more willing to approve your application.

Compare Bad Credit Car Finance

Specialised Car Finance Companies and lenders offer tailored loans and credit products to help people with poor credit scores obtain the vehicle they need.

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Can an 18-Year-Old Get a Car Loan to Buy a New Car?

It is possible for an 18-year-old to get a car loan, but it can be more challenging than for older drivers. Lenders may view younger drivers as higher risk due to their lack of credit history and limited financial stability.

To improve your chances of being approved for a car loan at 18, consider:

  1. Getting a co-signer: A parent or guardian with a good credit history can co-sign your loan, making them equally responsible for the repayments and increasing your likelihood of approval.
  2. Saving a larger deposit: A higher deposit demonstrates your commitment to the loan and reduces the amount you need to borrow, making you a more attractive candidate to lenders.
  3. Choosing an affordable car: Get a cheaper, used car rather than a brand-new vehicle to keep your loan amount and monthly repayments manageable.
  4. Building your credit score: If possible, start building your credit score before applying for a car loan. This could involve taking out a credit card, paying bills on time, or being added as an authorised user on a parent's credit account.

Did you know: Some car manufacturers offer special finance deals for new drivers. These can sometimes be more competitive than general market offers.

Is Car Finance Available for 19 and 20-Year-Olds?

Yes, car finance is available for 19 and 20-year-olds, but you may face some of the same challenges as an 18-year-old. Lenders will still consider factors such as your credit history, income, and affordability when deciding whether to approve your application.

However, as you get older and gain more financial stability, you may find it easier to secure car finance. For example, a 20-year-old with a steady income and a year or two of credit history may be viewed more favourably than an 18-year-old with no credit history at all.

To increase your chances of approval and get the best car finance deals as a young driver, follow the tips outlined earlier, such as saving a larger deposit, choosing an affordable car, and considering a guarantor loan if necessary.

Is Car Finance Available for 19 and 20-Year-Olds

Can a 21-Year-Old Get a Car Loan?

A 21-year-old is in a better position to get a car loan than an 18, 19, or 20-year-old. By this age, you may have built up a longer credit history, have a more stable income, and be viewed as a lower risk by lenders.

However, you'll still need to meet the lender's eligibility criteria and demonstrate that you can afford the monthly repayments. Factors such as your credit score, income, and the size of your deposit will all play a role in determining the interest rate and terms of your loan.

As with any age, shopping around and comparing offers from multiple lenders is crucial to finding the best car finance deal for your individual circumstances.

Is a Personal Contract Hire (PCH) Agreement Right for New Drivers?

Personal Contract Hire (PCH) is a type of car leasing agreement that may be an option for new drivers. With PCH, you make fixed monthly payments to lease a car for a set period, usually 2-4 years. At the end of the agreement, you simply return the car to the leasing company.

PCH can be an attractive option for new drivers because:

  1. Lower monthly payments: Since you're only paying for the depreciation of the car rather than its full value, monthly payments are often lower than with other finance options.
  2. Maintenance and servicing: Many PCH agreements include maintenance and servicing costs, making it easier to budget and manage the expenses associated with running a car.
  3. Access to newer cars: PCH allows you to drive a newer car that might otherwise be out of your budget.

However, there are some drawbacks to consider:

  1. No ownership: With PCH, you never own the car. This means you can't sell it or modify it, and you'll need to find another car at the end of the agreement.
  2. Mileage restrictions: Most PCH agreements come with annual mileage limits. If you exceed these limits, you'll face additional charges.
  3. Credit checks: As with any finance agreement, you'll need to pass a credit check to be approved for PCH. New drivers with limited credit histories may find it more challenging to be approved.

Ultimately, whether PCH is right for you as a new driver will depend on your personal circumstances and preferences. It's important to carefully consider the pros and cons and compare PCH with other finance options before making a decision.

Can You Get Car Finance as a Student

Can You Get Car Finance as a Student?

Yes, it's possible to get car finance as a student, but it may be more challenging than for non-students. Lenders will typically want to see evidence of a regular income, which can be difficult for students who are studying full-time and not working.

However, there are some options available:

  1. Student car finance: Some lenders offer specialised car finance deals for students. These may have more flexible eligibility criteria, such as accepting alternative forms of income like student loans or grants.
  2. Guarantor loans: If you have a parent or guardian with a good credit history who is willing to co-sign your loan, you may be able to secure a guarantor car finance deal.
  3. Part-time income: If you have a part-time job or a regular source of income, such as a student loan or grant, this may be sufficient to meet a lender's income requirements.
  4. Savings or parental support: If you have significant savings or financial support from your parents, this can help demonstrate your ability to make the monthly repayments and improve your chances of approval.

As with any car finance agreement, it's crucial to budget carefully and make sure you can afford the monthly repayments alongside your other living costs and financial commitments. Be sure to compare offers from multiple lenders and read the terms and conditions carefully before signing any agreement, compare representative apr and exact rates while looking at all available young driver car finance options. Also look at lump sump / balloon payment options.

Our Car Expert Comments:

"When financing your dream car, look at all options to find the best fit for your needs and budget. PCP is fantastic if you enjoy driving the latest models and want flexibility. For those with less-than-perfect credit but can manage monthly payments, HP offers a path to ownership. However, with a strong credit score and competitive interest rate, a car loan may be the most cost-effective. Consider your deposit, monthly budget, and long-term goals to navigate car finance with confidence and drive away with the best deal."

Charlotte Yates
Charlotte Yates

Personal finance content expert

Frequently Asked Questions

The best car finance option for young drivers depends on your individual circumstances and preferences. PCP and HP are popular choices, as they offer lower monthly payments than a personal loan. However, a personal loan gives you more flexibility and means you own the car outright from the start.

Yes, it's possible to get car finance with no credit history. Some lenders specialise in helping young drivers with limited credit histories. You may need to provide additional documentation, such as proof of income or bank statements, to demonstrate your ability to make repayments.

The amount of deposit you need for car finance varies depending on the lender and your credit profile. Some lenders may offer no deposit deals, while others require a minimum of 10-20% of the car's value. A larger deposit can improve your chances of approval and lower your monthly repayments.

If you miss a car finance payment, you may be charged a late payment fee and it could negatively impact your credit score. If you continue to miss payments, the lender may repossess the car. If you're struggling to make repayments, contact your lender as soon as possible to discuss your options.

If you've bought a car on finance, you'll need to check with your lender before selling it. With PCP and HP agreements, the lender owns the car until you've made the final payment, so you can't sell it without their permission. If you have a personal loan, you own the car outright, but you'll need to use the sale proceeds to pay off the outstanding loan balance.

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References

  • [1] Money Advice Service
  • [2] Experian

Page last updated on: 20/05/2024

Page reviewed by: Shay Ramani

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