Student Car Finance
Can a student get car finance
Being a student is exciting, but it can also be pretty hectic. Travelling between home, university or college, and a part-time job can be a lot.
What’s more, with train prices seemingly reaching new heights every year, more and more students are relying on a car as their primary way of getting about.
Driving is often cheaper than relying on public transport nowadays, and it 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 a car as a student can be easier said than done. As most students are between 18-21 old, they probably haven’t had much of a 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 students get car finance?
At Young Car Driver, we’re here to help students get behind the wheels of a car. So if the trains not working for you anymore, read on to see what the student car finance options are!
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 student car loans can be somewhat difficult to come by.
Also, university can be a challenging time financially, and for many students, they end up falling into debt. Unpaid phone bills and overdrafts can be a fast-track to poor credit history.
If this is the case, we’re here to help you find the best bad credit car finance deal.
There are lenders out there who will offer car finance for students with bad credit, although you may end up paying more interest than those with good credit ratings.
Still, don’t lose hope: car finance for students with bad or no credit is possible!
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. 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 payments on your behalf if you’re no longer able to 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 loan application may give the lender the confidence it needs 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 can be seized you can both end up in court, with credit ratings harmed. So make sure your guarantor is someone who 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.
Types of car finance deals for students
As a student, the 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
Hire purchase is what it sounds like – you make a bunch of repayments and own the car at the end. You essentially ‘hire it’ 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 ‘option to purchase’ at the end of the term.
For more on hire purchase car finance agreements, 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 or 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 with 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 our guide.
What is a credit score
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. If you have a bank account, a mobile phone contract, or even a Netflix subscription: you’ve got a credit history.
Credit reference agencies record every financial step we make: it’s these agencies that lenders look at to see if they trust you with a student car deal.
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 who had a bad history of paying people back, would you lend to him? Nope!
Of course, Everyone is entitled to 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.
By keeping a good credit history, you can greatly improve your chances of student car finance approval.
Building your credit history can help you get student car finance
Unfortunately, building up your credit score is a marathon, not a sprint. However, there’s a lot of things you can do to jumpstart the process and give a quick boost to your score.
It’s really 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 it comes to 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 is called the electoral roll, and it 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-time.
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 at 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. Make sure that the contract is in your name and not your parents. Pay for it out of your account to build a positive 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 off 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, it’s going to be extremely difficult to get a student car finance deal: 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 pretty small surplus remaining after allowing for your essential outgoings and that it won’t fund a £100 per month payment plus those extra motoring costs we mentioned. 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 important to a lender, rather than the number of hours you work. Also, how long you’ve worked there is essential. 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.
For the purpose of a student car finance application, all that matters 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 family member who is working, you might have a better chance of getting a student car finance deal.
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 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 a guarantee that you’ll get the job again when you come back to uni?
Whatever your situation, add your various incomes together and then subtract your expenses (including setting aside some money for emergencies) to see if you can afford a student car finance deal. Simply put, the honest 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!
If you’re on a tight budget, you can find reliable used cars for less than £100 on an HP car finance agreement. If you decide to put a deposit down, your monthly repayments will be lower.
Of course, the reaches far beyond just paying for the vehicle. You need to 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’re probably not going to be happy with your insurance deal. Depending upon your age, driving history and where you live, insurance could very well cost you thousands of pounds per year.
However, don’t settle for the first couple of quotes you see. Make sure you shop around so you 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 cars you’re interested in.
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 that you need a car, make sure you 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 make sure you’re not heading into financial trouble.
And most importantly, if you do end up with a car of your own, drive safe!
Rates from 7.9% APR: the exact rate you will be offered will be based on your circumstances, subject to status.
Representative example: borrowing £6,500 over 5 years with a representative APR of 19.9%, an annual interest rate of 19.9% (Fixed), and a deposit of £0.00, the amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount payable of £9,964.37.
We look to find the best rate from our panel of lenders and offer you the best deal you’re eligible for. We don’t charge a fee for our service, but we earn a commission. This does not influence the interest rate you’re offered in any way.
Autedia Limited is a credit broker and not a lender, authorised and regulated by the Financial Conduct Authority (Firm Reference Number: 948436). You can check the authorisation on the FCA Financial Services Register.