Car finance helps you get a good second-hand car without paying all the money upfront. Instead, you pay in smaller amounts over time (from one to seven years), making buying a car a lot more affordable. Although there isn't a specific type of car finance for students, many providers offer options for students depending on their circumstances.
Three common types of car finance are:
Unsecured personal loan (UPL): You borrow a lump sum to buy the car outright and make monthly repayments over time. Sometimes simply referred to as a car loan.
Hire purchase (HP): You borrow the cost of the car (minus the deposit) and make fixed monthly payments. After all payments and a final fee, the car is yours.
Personal contract purchase (PCP): You borrow the cost of the car's depreciation (the amount it loses in value over time), so monthly payments are smaller. At the end, you can pay a big final fee known as a ‘balloon payment’ to buy the car.
Getting car finance can be tricky for students. To be eligible, you must be over 18, have a full driving licence, a regular income, manageable debt, and a good credit score (a history of paying bills on time). Without these, it’s harder to qualify for car finance.
The affordability factor
Make sure you can afford the car along with all your other expenses. You won’t want to spend all your money on a car and then struggle to pay for other living costs – this will have a negative and lasting impact on your time at university. Car finance is a big commitment, so get advice if you're unsure.
One reason students are turned away for car finance is because of a poor or non-existent credit rating. Lenders want proof that you can manage your finances. Here’s how to build your credit history and make yourself more attractive to lenders:
Building a good credit history
Check your credit score: Regularly check your credit score and fix any mistakes.
Register to vote: Get on the electoral roll at your current address.
Pay bills on time: Have a mobile phone contract in your name and pay bills on time.
Share household bills: If you live with others, have at least one household bill in your name and pay it on time.
Watch your spending: Cancel unnecessary subscriptions and limit spending on things like takeaways.
Work out your budget
List your monthly income (like part-time earnings, student loans and grants) and expenses. This will help you to work out how much you can afford to spend on car finance. Don’t forget to include car running costs like maintenance, tax, insurance, fuel and parking.
Use a finance calculator
An online car finance calculator can help you see what your monthly payments might look like. You can play around with different loan terms and amounts to figure out what you can afford. This won’t affect your credit rating and can help you decide if car finance is right for you.
Get a part-time job
Having a regular income, even if it’s a part-time job, shows lenders that you are in a position to pay off your loan. However, we know university life can be full on. If you can’t take on a part time job, you might still get car finance with a guarantor.
Get a guarantor
A guarantor is a trusted person (like a parent) who agrees to pay your loan if you can't. Some lenders prefer the security of a guarantor when lending to young people, so this could be a good way to borrow while building your credit score. Learn more about guarantor car finance.
There will always be lenders who will offer you a loan but you need to be sure the rate is affordable now and over the course of your time as a student, and beyond. Compare lenders to make sure you are getting decent interest rates and the most suitable deal for your budget.
Similarly, compare the different finance packages on offer to be sure you’ve chosen the best product for your circumstances. A PCP deal might seem like a good bet because of the lower monthly cost when compared with HP, but you’ll need to either refinance at the end of the agreement to afford the balloon payment; have enough saved to pay for it; or hand the car back. Although the temptation is to jump at the first offer of finance it's important that you don’t rush your decision.
If you do your research and get to grips with your options, you’ll have a much better chance of getting car finance as a student.
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