Now you’ve passed your driving test, it's time to think about getting a car. With your own set of wheels, you won’t need to rely on lifts anymore.
Car finance helps you stretch your budget rather than having to pay for everything in one go. But getting car finance for younger drivers can be challenging.
Let's look at what you need to consider when it comes to car finance for younger drivers and students.
Car finance for students
Car finance for students is available but it can be tricky to get approved. Not all students are younger drivers, though most are aged 18-21 and haven’t yet had much time to build up a credit history. A student’s income is also usually low as they tend to work only work part-time, if at all.
If you’re a student with a low income and a bad credit score, you could improve your chances of getting a decent deal by using guarantor finance. It means someone else agrees to step in if you ever find you can't pay the monthly instalments on your car finance deal.
Looking for finance on a new car?
Car finance for 17-year-olds
You need to be at least 18 years old before you can sign a credit agreement, so if you’re 17 you can’t apply for car finance just yet.
Your only option is to buy the best car you can afford using your own savings and any informal loans you can get from family and friends.
It’s a good idea to take any informal agreements like this seriously. Plenty of friendships have been destroyed and family rifts created over money.
Car finance for 18-year-olds – and older
On your 18th birthday, the situation improves. But just because you’re eligible to apply for car finance doesn’t automatically mean you’ll be successful.
Many lenders won’t agree to finance unless you're in employment - with a regular income - and have a decent credit history.
Both are hard to come by at this age, particularly as you're likely to be at college or university and juggling various expenses.
This can make it tough to find a car finance deal.
The good news is there are companies focusing on car finance for students. You need to think carefully about any car finance deal you’re offered to make sure it’s cost-effective and is right for you.
Car finance options for young drivers
Provided you’re over 18, there are 3 main car finance options for young drivers to consider:
Personal Contract Hire (PCH)
Personal contract hire (PCH) is a type of long-term car hire agreement that allows you to lease a car for between 12 to 48 months. You pay a deposit at the beginning, usually worth 3-9 months of the monthly instalments on the deal, and then make monthly payments until the end of the contract. At this point, you must hand back the car, as PCH doesn’t give you the option of actually buying a vehicle. Even though you don’t own the car, you still need to insure your leased car during the PCH agreement.
Hire Purchase (HP)
Hire purchase (HP) is a way to buy a car without having to pay everything upfront. You typically pay a deposit worth at least 10% of the car’s value at the beginning of the agreement. Then you pay off the value of the car and the interest on the HP deal over the length of the contract, which is usually 3-5 years. You then own the car at the end of the agreement. Both the initial deposit and the monthly payments tend to be significantly larger than with PCH.
Personal Contract Purchase (PCP)
Personal Contract Purchase (PCP) gives you the option but not the obligation to buy the car at the end of the car finance agreement. You usually need to pay a deposit worth a minimum of 10% of the car’s value. Next, you make monthly payments over the term of the PCP deal, which usually run for 3-4 years. These monthly instalments tend to be lower than with HP as these are to pay off depreciation on the car rather than its value. But if you decide you want to take ownership of the car at the end of the agreement, you then make a balloon payment, which is a large one-off amount.
Alternative sources to finance your car
Of course, there’s no guarantee that you’ll be approved for a car finance deal.
Here are some other things you can do to get behind the wheel if all else fails:
Personal loan
Getting a personal loan to finance a car means you own it straight away. There’s no deposit to pay a the beginning of the loan agreement but the monthly repayments tend to be higher than the monthly instalments on any of the 3 main car finance options.
But loans for young people can be tricky. If you’re a younger driver, it’s likely you’ll only be offered a small amount with a personal loan– and at a higher interest rate than advertised – as you could be seen as a risky proposition.
There are firms that offer loans to people with bad credit histories. The downside, once again, is that the borrowing costs can be substantially higher.
Put it on the credit card
If you can get a credit card with a decent interest-free period on new purchases – and clear the debt at the end of the term - this might be worth considering if the credit limit is enough to buy the car you want.
Once the credit card’s zero percent offer is over you'll find the interest rate is likely to be well into double figures. So things could suddenly get a lot more expensive if you haven’t already paid off the balance by then.
Guarantor car finance
Guarantor car finance is where a family member or friend with a decent credit score is added to your application. The guarantor is responsible for repaying the loan if the borrower can't.
Guarantor loans could help you if have little credit history or a poor credit rating. You need to be over 18 to apply.
Remember, if the borrower and their guarantor fail to make the repayments, then both of their credit scores are affected.
Paying with cash
It’s usually preferable to buy with cash because you avoid having to pay interest on any loan or finance agreement.
Do you have a wealthy friend or family member? If so, maybe they’ll informally lend you the cash required at zero – or a minimal – rate of interest.
If you’re paying with cash, you might also be able to use it to your advantage when buying the car.
Let the dealer think you’re considering finance until you’ve agreed on the bottom-line price – and then push for a cash discount.
Build a credit history
Regardless of whether someone will lend you some money, there are things you can do in the meantime that can help you over the long term.
For example, it’s a good idea to start building a credit history as this makes it easier to get finance in the years to come.
Setting up and using a UK current account helps, as does paying regular direct debit bills for items such as your mobile phone.
Using a credit card – as long as you make all your scheduled repayments – could also boost your chances of getting student car finance.
Just make sure you don’t forget to pay any bills as a missed or late payment counts against you. The last thing you want is to be taken to court over the money you owe.
Also – it’s worth remembering that too many hard credit checks – which happen when you make an actual application for credit – can adversely affect your credit score.
Insurance costs
There’s no getting away from the fact that young, inexperienced drivers can expect to pay hefty insurance costs – considerably more than £1,000 - for even relatively modest cars. But there are some things you can do to get cheaper car insurance.
The first is opting for a policy that comes with a black box, which means a telematics device monitors how you drive the car and report back to the insurance company. Insurance costs on black box insurance policies can be significantly lower.
Another way you could cut the cost of your car insurance is by adding a more experienced driver to your policy. But you should never put them down as the main driver when that’s not the case as this is a type of insurance fraud called fronting.
If you've bought a new car either in cash or with car finance, then you might want to think about gap insurance. Gap insurance protects you from depreciation in the event your car is written off through damage or theft. This is of course an additional cost, so make sure you really think about the type of car you’re buying.
Choose the right car – and remember to haggle
A lot will depend on your choice of car. You want to look cool but the best car for new drivers should also combine easy driving and affordability. Avoid luxury, sporty models with huge engines as these tend to be extremely expensive – if not virtually impossible – to insure.
Car dealers may not like the idea of having their margins squeezed, but it’s always worth seeing if you can get something off the price.
The top tip to negotiate the best car deal is to do your homework. Find out how much similar cars are being sold for and set yourself a realistic goal for what you're willing to pay.
Young driver car finance FAQS
Should you finance your first car?
Car finance can be an affordable and flexible option, allowing you to spread the cost of your car over time rather than having to pay everything upfront in one go. It means you could get a car that would otherwise be outside your budget. But car finance for younger drivers can be challenging as young people often have low incomes and weaker credit scores. You should think carefully before you sign a car finance agreement and make sure you’re comfortable with the monthly payments.
Do I need to be employed to get approved?
It might still be possible to get approved for student car finance if you’re not working. But car finance companies want to see that you can afford your monthly repayments. A guarantor – assuming they have a good credit score and decent regular income – may improve your chances of getting approved. This is because they're responsible for making the payments if you can’t.
Can an international student finance a car?
If you’re an international student living in the UK, you can still get a car finance deal. You need to be over 18 years old and registered at a UK university. If you’re not an EU or EEA citizen, you also need a guarantor who’s a UK resident.
Is there such a thing as new driver car finance with insurance?
Car finance for younger drivers deals may include car insurance. But this doesn’t mean you’re being offered car insurance for free. The cost of a car insurance product has usually just been added on. It might work out cheaper just to shop around for separate deals on car finance and car insurance.
Can you finance a car without a licence?
You don’t need a full driving license to apply for car finance but you need one if you want to drive the car on your own. You can use a provisional license or passport as ID when you apply for car finance.
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