Car finance for students
Being a student is exciting, but it can also be pretty hectic. Travelling between home, university, and a part-time job can be difficult.
With train prices seemingly reaching new heights every year, more and more university students, in particular, rely on a car as their primary way of getting around.
Driving is often cheaper than relying on public transport nowadays, which means you can get where you need to go when you need to go there – no more waiting about on ‘once per hour trains.
However, getting car finance for students can be easier said than done. Most students are between 18 and 22 old, so they probably haven’t had much chance to build up their credit history.
On top of this, it’s hard to prove you’ve got a regular income as a student, even if you’re working part-time. If you’ve not been there for long, or your income changes month to month, a lender might not consider it secure employment, but how can university students get car finance?
We’re here to help all students get behind the wheels of a car. So, if the trains are not working for you anymore, read on to see the student car finance options!
Types of car finance deals for students
Student car finance deals on offer are likely to be either a Hire Purchase (HP) or Personal Contract Purchase (PCP).
Hire purchase for student car finance
HP is the most common type of car finance for students typically because students with a less than perfect credit history and on a low income are more likely to buy a used car than a new vehicle.
Hire purchase is what it sounds like – you make a bunch of repayments and own the car at the end. You essentially ‘hire the car until the final payment: when you own the vehicle. You’ll split the total cost of the car between the deposit and the monthly repayments and then have the option of paying a small fee known as the ‘option to purchase at the end of the term.
For more on hire purchase car finance, check out our guide.
Personal contract purchase for student car finance
Student PCP car finance is a form of car finance that’s arguably more popular than Hire Purchase due to the lower monthly fees. However, this comes with a catch, though. You won’t automatically own the car at the end of the term. Instead, you’ll have three options; pay a fee based on an agreed guaranteed future value to own it, return the car and walk away, upgrade to another vehicle, and keep an agreement going. It’s worth noting that the fee at the end of a PCP is a lot: usually a few thousand. That’s why the monthly payment is lower! Unlike a Hire Purchase, you’ll also have a mileage limit with a PCP.
For more on the ins and outs of PCP car finance, check out the guide.
Car finance for students with bad credit
If you’re like most students, it’s doubtful that you’ve built up your credit history very much.
Unfortunately, many lenders see ‘no credit score’ as equivalent to ‘bad credit score’, meaning getting car loans for students can be challenging.
Also, university can be a challenging time financially, and many students end up falling into debt. Unpaid phone bills and overdrafts can quickly lead to poor credit history.
We’re here to help you find the best bad credit car finance deal if this is the case.
Lenders out there will offer car finance for students with bad credit, although you may pay more interest than those with good credit ratings.
Still, don’t lose hope: car finance for students with bad or no credit is possible!
What is a credit score?
You won’t get car finance as a student without the lender reviewing your credit history.
The words’ credit score’ often inspires fear. It can be the dealbreaker between something you want (or need) and going back to the drawing board.
Whether we know it or not, we all have a credit history. You’ve a credit history if you have a bank account, a mobile phone contract, or even a Netflix subscription.
Credit reference agencies record every financial step we make: lenders look at these credit files to see if they trust you with a student car loan.
They use this credit rating, plus the information you give them (address, salary, employment, etc.).
While it sounds a bit sinister, it does make sense. If you had a mate with a bad history of paying people back, would you lend to him? Nope!
Of course, Everyone can see what is on their credit history, and you can do so via Moneysupermarket’s Credit Monitor or Money Saving Expert’s Credit Club. It’s worth doing this to keep on top of your rating. In the case of any mistakes (which is rare), you can tell the agency who will check it and, if they agree, amend your history.
Keeping a good credit history can significantly improve your chances of student car finance approval.
Building your credit history can help you get student car finance
Unfortunately, building your credit score is a marathon, not a sprint. However, you can do many things to jumpstart the process, boost your score quickly, and improve the likelihood of getting accepted for a student car loan.
It’s worth doing this as a student. The earlier you can start building your credit rating, the better. You’ll appreciate having a good credit rating when buying a house!
Here are a few simple ways you can improve your credit score and increase your chances of getting student car finance:
Get your name on the electoral roll
This one might seem random, but there’s some logic behind it. Lenders often check the Electoral Roll to confirm you’re officially a resident at that address. If you’re not, they’ll unlikely provide student car finance for you, as they’ll consider you untrustworthy.
With few exceptions, by law, everyone over 16 must register to vote (even if they don’t show up). This database, called the electoral roll, contains your name and address. It’s worth putting down your parents/home address here if you’re likely to move from your university accommodation after term.
The chances are that if you’re a young student, your parents will have registered you on the roll and given your home address. This entry will appear on your credit history and help to confirm the address you provide on your loan application.
However, you can also register at your student address, although you can only vote once. Again, it will help your application if you also register this second address.
Start a mobile phone contract.
If and only if you can afford it – not an excuse to get the latest iPhone. Most students have a mobile phone, and many are on contract. Ensure the agreement is in your name and not your parent’s. Pay for it out of your account to build a favourable credit profile. Of course, it goes without saying: ALWAYS pay on time. Set up a direct debit and keep on top of it.
Get a bank account credit card.
While you undoubtedly have a bank account, you might not have a credit card. If you have a student bank account, your bank might offer you a student credit card with a low credit limit. Start using this to make small purchases, then pay your balance in full at the end of each month: even if it’s for a £25 Tesco shop. No matter how much you spend on it, paying it off each month will show that you responsibly handle credit.
Take a part-time job to secure student car finance
If the only income you receive is a student loan, getting a student car finance deal will be challenging: after all, what if you dropped out of uni? Almost every lender will ask to see evidence of a regular income when considering an application for car finance for student drivers.
We’ll assume you have a small surplus after allowing for your essential outgoings and that it won’t fund a £100 per month payment plus those extra motoring costs (we mention below under the heading know your budget). You’re going to need to find another source of money – in other words, a job.
If you’re studying, it’s likely to be a part-time job, but that’s okay. What you earn is essential to a lender rather than the number of hours you work. Also, how long you’ve worked there can be crucial. You’ll need to have shown that you’re reliably employed. If you’ve been there a month, your lender might suspect that you’re in a probation period and that the job isn’t very secure.
All that matters for a student car finance application is your take-home income, not your gross (before tax) income. A rule of thumb is that lenders will only approve finance that amounts to monthly payments of 25% or less than your net income.
The one scenario where you might get away with being unemployed is if you make a joint application. If you did this with a working family member, you might have a better chance of getting a student car finance deal.
Student car finance with a guarantor
It all seems a bit grim. You’re probably thinking that getting car loans for students is simply impossible. But don’t fret, as there’s a simple way you can improve your chances of being accepted.
You can find yourself a guarantor and take advantage of guarantor car finance for students. A guarantor is someone, usually a close relative, such as a parent. This person needs to have a good credit score and, most importantly, be prepared to back your loan by agreeing to continue your student car loan payments if you can no longer make them!
It’s important to know that the guarantor is not actively paying anything on the loan unless you can’t make the repayments. If you cancel your direct debit, for instance, and don’t reply to the lender, they expect your guarantor to continue paying.
Having a guarantor on your student car loan application may give the lender the confidence to make you an offer for car finance.
As you can imagine, being a guarantor is a big deal. If neither of you pays, your car could have to go back, and you can both end up in court with credit ratings harmed. So make sure your guarantor is in a healthy financial position.
It’s good practice to put aside three payments in your bank account before the start of your term. Having money in reserve can bail you out of a crisis and give you time to talk to your lender about making other arrangements (like extending the deal to provide you with more time to pay).
Despite the risks and potentially awkward conversations, you might end up with a guarantor car finance loan with a better interest rate than standard student car finance with no guarantor.
Student car finance: work out your income and expenses
Knowing your financial position might seem basic, but be honest with yourself: before you apply for a student car loan, make sure you can afford one! Look at your income and outgoings. What do you earn, and how much do you spend?
Also, are your circumstances likely to change soon? Are you moving back home and giving up your part-time job? Is it guaranteed that you’ll get the job again when you return to uni?
Whatever your situation, add your various incomes and subtract your expenses (including setting aside some money for emergencies) to see if you can afford a student car finance deal. Simply put, the truth is that getting car finance for students with low income will be challenging. So if possible, get yourself a part-time job.
Car finance for students: know your budget
As a student, you’re probably not going to get acceptance for a finance deal on a BMW M4.
Applying for an unrealistic car finance deal can damage your credit rating, as there will be a search on your record, which could negatively impact future credit applications.
To work out what kind of car you’re likely to afford, you can use our handy car finance calculator!
On a tight budget, you can find reliable used cars for less than £100 a month on an HP car finance agreement. If you decide to deposit, your monthly repayments will be lower.
Of course, it reaches far beyond just paying for the vehicle. You must factor in road tax, servicing, and consumables such as tyres or windscreen wipers. Then there’s the dreaded ‘big one’: car insurance.
As a young driver, you’ll probably not be happy with your insurance deal. Depending on your age, driving history and where you live, insurance could cost you thousands of pounds per year.
However, ensure you use an insurance comparison website to get the best possible deal. Insurance costs vary dramatically depending on what car you’re driving, so it’s worth getting quotes for a range of vehicles in which you are interested.
A final tip. Never accept your insurance renewal price from your current insurer without first checking with a comparison site.
Buying a car with student loans
A final word of caution: buying a car is fun and exciting, but it’s a serious responsibility. If you’re confident you need a car, take it seriously and take the advice in this article.
Likewise, don’t blow your entire budget on a set of wheels! A student loan is to help you get through university: pay your bills, pay for your tuition, and have a good time too.
Before committing to a car, get a second opinion from your parents or more experienced loved ones: ask them to look at your budget to ensure you’re not heading into financial trouble.
And most importantly, if you end up with a car of your own, drive safe!
FAQs - Car loans for students
Can a university student get car finance?
Yes! The good news is that our partners work with lenders that can offer student car finance.
We understand that a car might be essential when studying, for getting to your job placement or part-time work, travelling between university and home or visiting friends.
However, if you are under 21 and applying for your first finance and don’t currently have income apart from your student loan. Finding car finance is most likely challenging.
Typically, lenders on the panel will require students have part-time work. Often lenders will want you to have a guarantor to offset the risk if you have no credit history.
How old do you have to be to get a car on finance?
You must be 18 years old to sign a credit agreement in the UK. As car financing is a credit agreement, you must be 18 to apply for car finance.
Can a student with a part-time job get car finance?Car finance lenders understand students will not have a full-time job. Applying for student car loans with part-time employment is acceptable. Your monthly income after expenses is what matters to the lender. If you can afford the repayments on the vehicle, you’ll likely get car finance - regardless of the number of hours you work each month.
Can I use student loan to pay for car finance?How you use your student loan is up to you, but it needs to be used to fund tuition costs and living expenses. You might use part of your student loan as a car deposit, reducing your monthly payments. Still, we recommend additional income, such as a part-time job, to help with your finances.
Can I get car finance for students with bad credit?As a student, you might have a low credit history. However, some lenders specialise in offering bad credit car finance for students.