Whether you need a car for commuting, family needs, or other essential activities, owning a vehicle can significantly improve your quality of life.
Fortunately, being on benefits doesn’t automatically disqualify you from obtaining car finance. In this article, we’ll explore your options, the process, and some tips to enhance your chances of approval.
Types of benefits and their impact on car finance
Benefits come in various forms, and not all will have the same impact on your ability to secure car finance. Here are some of the most common types of benefits and how they might affect your application.
Universal Credit
A government benefit for individuals with low income or those who are out of work. Lenders might view Universal Credit as a stable income source, especially if you have been receiving it for a significant period.
Disability Living Allowance or Personal Independence Payment
Disability Living Allowance (DLA) or Personal Independence Payment (PIP) are benefits provided to individuals with disabilities to help cover additional costs associated with their condition.
Lenders often consider DLA and PIP as reliable sources of income, as they are generally long-term benefits.
Jobseeker’s Allowance
Jobseeker’s Allowance (JSA) and Employment and Support Allowance (ESA) are benefits for those seeking work or unable to work due to illness or disability.
These benefits might be seen as less stable by lenders, particularly if you have only recently started receiving them.
Can you get car finance on benefits?
The short answer is yes, you can get car finance on benefits. However, the process can be more challenging, and you might face stricter criteria and higher interest rates. Here’s what you need to know to improve your chances:
Demonstrate a stable income
Demonstrating a stable income is crucial. Lenders want to see that you have a consistent and reliable source of income. If you can demonstrate that your benefits provide a stable income, this can positively impact your application. Combining benefits with any additional income, such as part-time work, can also strengthen your case.
Improve your credit score
Improving your credit score is also essential. Your credit score plays a crucial role in the approval process for car finance.
A higher credit score indicates that you are a responsible borrower. To improve your credit score, pay bills on time, reduce outstanding debt, and avoid multiple credit applications in a short period.
Consider a guarantor
Considering a guarantor can significantly improve your chances of getting approved for car finance. A guarantor is someone who agrees to repay the loan if you are unable to do so.
This person should have a good credit history and a stable income. Lenders see guarantors as a form of security, making them more willing to approve your application.
Exploring different car finance options
Different car finance options have varying requirements and suitability for those on benefits. Here’s a closer look at each.
- Hire Purchase (HP) involves paying an initial deposit, followed by fixed monthly payments. The loan is secured against the vehicle, meaning the lender can repossess the car if you fail to make payments. HP agreements are often easier to obtain for those with lower credit scores, as the lender has the car as collateral.
- Personal Contract Purchase (PCP) involves lower monthly payments compared to HP, but a larger final payment (balloon payment) is required if you wish to keep the car at the end of the agreement. This option can be more flexible but might be harder to qualify for if you’re on benefits, due to the larger payment at the end.
- Personal loans from a bank or building society can be used to purchase a car. This option is unsecured, meaning the lender does not have the car as collateral. Personal loans might require a higher credit score and a stable income, making them more challenging to obtain on benefits.
How to apply for car finance on benefits
- Check your eligibility: Before applying, it’s essential to check your eligibility. Some lenders specialise in offering finance to those on benefits. Research and compare different lenders to find the ones that are more likely to consider your application.
- Gather necessary documents: Having the right documents ready can speed up the application process. You will typically need proof of benefits, proof of identity, proof of address, and bank statements showing your income and expenditure.
- Consider your budget: Calculate how much you can afford to pay monthly without compromising your other financial commitments. Be realistic about your budget to avoid overextending yourself.
- Apply online or in-person: You can apply for car finance online or in-person at a dealership. Online applications might offer quicker responses, while in-person applications allow you to discuss your specific circumstances with a finance advisor.
Tips to enhance your approval chances
Being honest about your situation is crucial. Provide accurate information about your income and financial situation. Misleading information can lead to your application being declined or even legal consequences.
Shopping around can help you find a lender that is more sympathetic to your situation. Consider using a broker who specialises in helping individuals on benefits secure car finance.
Starting small can also help. If you’re finding it difficult to get approved for a larger loan, consider starting with a smaller, more affordable car. Demonstrating your ability to repay a smaller loan can improve your chances of being approved for larger amounts in the future.
It’s not impossible to get car finance on benefits
Securing car finance on benefits is challenging but not impossible. By demonstrating a stable income, improving your credit score, considering a guarantor, and exploring different finance options, you can enhance your chances of approval.
Remember to be honest about your financial situation and shop around for the best deal. With the right approach, you can obtain the car you need to improve your mobility and quality of life.
