Borrowing £6,500 over 48 months with a representative APR of 21.4%, an annual interest rate of 21.4% (Fixed) and a deposit of £0.00, the amount payable would be £196.24 per month, with a total cost of credit of £2,919.52 and a total amount payable of £9,419.52
How do young drivers get car finance?
Is there anything that beats the excitement and elation of passing your driving test? Whether you're a proud first time passer, or someone who has finally managed to pass after months of hard work, the ability to go anywhere at anytime with your new driving licence (without relying on parent taxis!) gives you the kind of freedom you've never had before! It's time to put all that theory and practice into place. But for that, you're going to need a car.
As a young or first time driver, it can be an incredibly daunting task when looking to buy a new car - or even your very first car. Here at ChooseMyCar, we understand just how overwhelming the entire process can be - which is why our trained team of expert professionals are on hand to provide you with the guidance and advice you need to make the best decisions moving forward.
The truth is that young people can often find it difficult to find the right car for them. Buying and running a car is a bit of a balancing act - you need something that is affordable and reliable, will offer relatively cheap car insurance, is affordable to run and is still stylish and good looking. When you add to this the fact that a lot of lenders and finance providers are reluctant in dealing with young people and new drivers, finding a suitable credit agreement and car finance option can become very challenging.
Why is car finance difficult to get for young drivers?
It's important to know exactly what options there are available to you when applying for car finance as a young driver. But before we get into that, it's crucial to understand exactly why young drivers find it difficult to apply for car finance. Some of the reasons include things such as:
- Young drivers are more likely to cause an accident - When you take on a car finance agreement, most of the time the car does not officially belong to you until the total amount has been paid off. Studies show that drivers under the age of 25 cause around 85% of all serious road accidents here in the UK, meaning that - to a potential lender - the lender's insurance, the car, is more at risk when compared to older demographics known for safe driving.
- Young drivers don't have much credit history - Financial inexperience will always be taken into account by a potential creditor. For young people, this can be an issue. The likelihood is that new and young drivers will not have a credit profile, so money management is difficult to assess through hard credit checks.
- Young people and students generally have less disposable income - People in their late teens generally earn around half the amount of people in their twenties - and students cannot take on full time work due to their studies. As such, your potential car finance provider will see this as a potential obstacle when it comes to your ability to make car loan repayments on time.
Overall, as frustrating as it may be, it's hard to get past the fact that most lenders generally consider people between the ages of 17 and 21 to be less experienced and responsible, both when it comes to the driving and their money management.
When you set up a car finance agreement with a lender, most of the time they will continue to own the car until the loan is fully repaid with the final payment. As such, during the period until the complete payment, the lender can seize the car to account for any financial losses should you default on your payments. However, young drivers are statistically more likely to be involved in an accident or collision due to less driving experience and a perceived lack of driving skills compared to older drivers.
This can seem unfair to conscientious and responsible young drivers looking for a new finance deal, but it is unfortunately simply a part of being a young driver.
Young people in their teens who have just passed their driving test are unlikely to have ever taken out any form of credit or a loan, which means that there is no credit profile for potential lenders to check. Credit checks to assess an applicant's reliability, strong credit history and money management cannot be performed on a young or new driver. Add to this the fact that people between the ages of 17 and 21 are likely to be earning far less and this casts doubt on your ability to keep making repayments on time.
Affordable Car for Young Drivers
I'm a young driver looking for a suitable car finance agreement - what options are open to me?
For any young person looking to own their first car, there is no doubt that purchasing a used car can be one of the best and most cost effective ways of making car ownership a reality. And purchasing a used car through car finance can make it even more affordable! Fortunately, dealing with used cars is exactly what we specialise in here at ChooseMyCar, so you couldn't have come anywhere better.
Car finance allows you to pay off the cost of your car in smaller and more manageable monthly instalments. When your potential lender has checked to make sure you have the regular income to afford these payments without defaulting, you'll be in a fantastic position to secure yourself a beneficial car finance deal - a great option for many young people and new drivers who want to drive but need to keep costs down.
But car finance isn't just one service - there are a range of different options open to you when choosing a suitable car finance agreement as a young driver. They each come with their own benefits and drawbacks, and it's an important process to look at all your options before deciding on what works best for you. Hire purchase (HP) and personal contract purchase (PCP) agreements are the most popular and common forms of car finance, involving monthly payments and a deposit. The full range of options includes:
- HP (Hire Purchase) - This is an option that allows you to pay in instalments over a fixed term and own the car at the end of the car finance term. Hire purchase usually involves a deposit, but upon the final payment the car will officially belong to you outright.
- PCP (Personal Contract Purchase) - Similar to the hire purchase car finance agreement, the personal contract purchase usually involves a small deposit and fixed monthly payments. However, at the end of the agreed loan period, you will be required to pay a balloon payment in order to own the car, or hand it back - this is an optional final payment.
- PCH (Personal Contract Hire) - If you are not interested in owning a car outright, then the personal contract hire route may be best for you. This is a lease contract in which you make scheduled repayments for which you are renting the car - there is no purchase involved. When your fixed term and finance instalments are completed, the car is returned rather than being bought.
- PL (Personal Loan) - If you want to seek an alternative to other car finance options, then a personal loan is a method that sees you borrow money from a bank or other lender, using this loan to purchase the car outright. This makes the process similar to that of cash buying, only you pay back your bank loan directly to the lender over time.
- GL (Guarantor Loan) - When younger drivers are looking for a car finance agreement, sometimes lenders will look for an extra level of assurance - this can often be achieved through a guarantor loan. With a guarantor loan, a third party is involved (your guarantor) who will be responsible for making payments if there is a problem and you find yourself unable to make a monthly payment.
Thinking about a personal contract purchase agreement as a young driver?
Another very popular car finance agreement is the personal contract purchase (PCP) agreement. This is similar to a hire purchase agreement in that you often make a small deposit, pay monthly instalments and own the car outright at the end of the term. However, there are some differences. The monthly payments made in a personal contract purchase are often lower than those made during a hire purchase finance agreement - but at the end of the term there is a one off balloon payment that must be made in order to retain ownership of the car. Otherwise, you will have to hand the car back or return it for part exchanges.
This is a good and flexible alternative to the hire purchase model for younger drivers who want to keep monthly costs down and to keep their options open. Monthly costs are lower, but the balloon payment to meet the full cost of the vehicle can be hefty and, if you aren't sure you'll be able to pay it but want to own the car, a hire purchase may be a better option.
Is a personal contract hire agreement right for new drivers?
If you want to have a car to use but are not as interested as paying to own a car, then a personal contract hire (PCH) car finance deal might be right for you. A personal contract hire is essentially a lease contract that means that you pay for use of the car, but do not buy it. The amount you pay is based on the depreciation of the car, so the model plays a big part in determining your monthly costs. You will also face mileage restrictions on a personal contract hire agreement too, or risk incurring additional costs. You will also have to be careful about general wear and tear throughout the hire arrangement. It is an increasingly popular option for young drivers whose main priority is getting on the road for employment or study.
What are some of the benefits to getting car finance as a younger driver?
If you have recently passed your driving test, are looking to buy your first car or are hoping to purchase a new vehicle and you are 21 or under, it might seem like getting car finance is a huge obstacle to overcome. While there are certain challenges to securing car finance, such as a lack of credit report and financial stability, it is certainly worth pursuing for a number of different reasons.
For example, young drivers may want to take full advantage of the fact that financing a car means that you don't have to pay a huge lump sum out of your bank account at the beginning. Most finance purchase options require some kind of deposit, but you still have the peace of mind of knowing that you will be paying for your car through manageable monthly instalments.
This is useful especially for first time buyers whose current situation might mean that they are facing high car insurance costs from their insurance company. Of course, a lot depends on choosing the right car in the first place. Young drivers will almost always find themselves in an insurance group that faces them with premium costs - as such, the manageable instalments of car finance can help mitigate the impact of the overall costs.
Pay as you go car finance options such as hire purchase and personal contract purchase require an initial deposit payment followed by regular scheduled repayments. Ownership of the car only becomes yours when the final payment has been made (or a balloon payment has been made at the end of a personal contract purchase agreement) and the rate you pay often depends on your mileage. As such, this flexibility is often a great choice for young drivers.
Can you get car finance as a student?
For a lot of students, having a car is an absolute necessity. Whether it be for travelling between home and university, travelling to work or just generally getting about. But it can be difficult to afford a car when you are studying and cannot take on full time work. Fortunately, car finance for students is a very viable and affordable solution that gets you on the road. Even if you have no credit history, if you can prove that you have a regular income and can afford the monthly repayments, then you have a good chance of securing car finance.
There are certain things that you can do to improve your chances to get car finance as a student, such as:
- Getting a part time job - Getting a job alongside your studies is a great way of showing how you might be able to afford your monthly repayments. This makes you far more attractive to potential lenders for student car finance.
- Look for student car finance with a guarantor - As a student, you may find it easier to access beneficial student car deals if you have a guarantor providing that added financial stability.
- Improve your credit score - Coming to understand your credit score and what might affect it allows you to begin building a strong credit history for future potential lenders to see. This will help you beyond just car finance. Fortunately, we have some great resources to help you improve your credit score here at ChooseMyCar.
One thing that is very important to remember is that you cannot use your student loan income to pay for car finance. Your student loan is given to you in order to cover tuition costs and living expenses and you won't be able to use this to pay for car finance in any situation.
What are the best cars for Young Drivers?
When you’re looking for your first car as a young driver, there are a few things you’ll want to consider. You will want to make sure that you get a good car finance deal that’s affordable for your current situation, but you’ll want to consider the type of car and how it matches both your driving ability and your needs.
In terms of value, young drivers are generally looking for a good deal on a car that is affordable to run, especially as their insurance rates are likely to be high. As such you’ll want to look for cars that can be bought on car finance cheaply, but also offer the chance of having lower insurance premiums.
A number of good deals can be found across the major manufacturers, like Ford, Peugeot, Skoda, Seat, Vauxhall, VW and Hyundai. Buying a used car from one of these manufacturers can be a great entry point to car ownership.
Particularly good examples of used cars that may offer a good deal, as well as a safe driving experience include:
We help Young Drivers to get Car finance!
At ChooseMyCar we work with approved and trusted local car dealers all over the country, with approved used cars starting from around £3,000 which could be as little as £54* per month through a Hire Purchase Agreement.**
*Based on an excellent credit score. Representative example "Borrowing £6,500 over 48 months with a representative APR of 21.4%, an annual interest rate of 21.4% (Fixed) and a deposit of £0.00, the amount payable would be £196.24 per month, with a total cost of credit of £2,919.52 and a total amount payable of £9,419.52."
**Hire purchase (HP) is an affordable way to buy a vehicle as it allows you to pay a deposit, and then make monthly payments to pay off the remaining amount. You’ll be the registered keeper of the vehicle and responsible for insurance, servicing and maintenance, but the finance company will be the legal owner of the vehicle until the outstanding finance (including interest and fees) is paid off.
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Get in touch with our friendly team of experts today
Looking for student car finance and young driver car finance can be tricky - we understand that here at ChooseMyCar. That's why we have excellent resources like our car finance calculator and guide to improving your credit rating here on our website. But we know that sometimes the best thing is to speak to a professional who really knows what they're talking about.
Well, you couldn't have come anywhere better than here at ChooseMyCar. If you want more guidance and assistance, just apply with us today. Our friendly team are all industry experts with the insight and expertise necessary to guide you to a car finance agreement that suits your financial situation.