Securing a car on finance is a common pathway for many to afford a vehicle by spreading the cost over a period of time. However, for learner drivers, the rules and possibilities surrounding car finance can seem a bit murky.
What car finance options might be available?
Car finance typically involves three main types: personal loan, Hire Purchase (HP), and Personal Contract Purchase (PCP). Each type has different requirements regarding eligibility, which could affect a learner driver’s chances of approval.
Personal loans
Personal loans offer the most flexibility as they are not specifically tied to the vehicle. This means the borrower can purchase the car outright from the dealer or a private seller. Banks or financial institutions provide these loans based on credit history, income stability, and debt-to-income ratio. For learner drivers, securing a personal loan will largely depend on their credit score and financial standing rather than their driving status.
Hire Purchase (HP)
With a Hire Purchase agreement, the borrower pays an initial deposit followed by monthly payments. The car remains the property of the finance company until the final payment is made. HP agreements are secured against the car, which might make lenders more willing to consider learner drivers. However, the applicant’s financial background will still play a crucial role.
Personal Contract Purchase (PCP)
PCP is similar to HP but with a twist at the end of the agreement. Here, the borrower has the option to return the vehicle, keep it by paying a balloon payment (also known as the Guaranteed Future Value), or trade it in for a new car. PCP deals often have lower monthly payments but stricter criteria on loan approval, which could pose a hurdle for learners.
Challenges learner drivers face
While being a learner is not a direct disqualifier for obtaining car finance, there are several indirect challenges that learners may encounter:
Age and credit history
Many learner drivers are younger individuals who may not have had the opportunity to build a substantial credit history. This lack of history can make it difficult for lenders to assess risk and could result in higher interest rates or outright denial.
Insurance costs
Learner drivers typically face higher insurance premiums. Since most finance deals require comprehensive insurance, the overall cost of financing a car as a learner can become prohibitively expensive.
Income stability
Lenders look for signs of financial stability, which includes consistent income. Some learner drivers, especially younger ones, might be in part-time employment or early in their careers, which could affect their eligibility.
How to improve your chances
Despite the challenges, there are several ways in which learner drivers can enhance their prospects of getting a car on finance:
Build a credit history
Using a credit card responsibly and paying off bills on time can help build a credit profile that appeals to lenders.
Save for a larger deposit
Offering a larger deposit can reduce the amount of finance required, and show financial responsibility, thereby making lenders more comfortable.
Consider a guarantor
Having a guarantor with a strong credit history can significantly improve the chances of securing a car finance deal. This person promises to cover the payments should the borrower fail to make them.
Compare different lenders
Not all finance providers have the same criteria. It’s worthwhile to shop around and compare different offers, especially those that are more favourable to young drivers or those with short credit histories.
Summing up the journey
In conclusion, while there are hurdles to clear, learner drivers are not disqualified from obtaining car finance by virtue of their learning status alone. By understanding the types of finance available, recognizing the challenges they face, and preparing accordingly, learner drivers can indeed navigate their way towards securing a car finance agreement.
Frequently asked questions
Can learner drivers get car finance in the UK?
Yes, learner drivers can get car finance in the UK. However, approval often depends on their credit score, financial stability, and income. Having a solid credit history and possibly a guarantor can improve their chances significantly.
What type of car finance is best for a learner driver?
Hire Purchase (HP) might be the most suitable for learner drivers because it is secured against the car, making lenders more likely to approve the finance. It also allows learners to spread the cost over time.
Do learner drivers pay higher interest rates on car finance?
Learner drivers might face higher interest rates due to perceived risks by lenders, such as a lack of extensive credit history and potentially lower income levels. Building a good credit score and offering a larger deposit can help secure better rates.
Can a learner driver finance a used car?
Yes, learner drivers can finance both new and used cars. The condition and age of the vehicle might affect the terms of the finance, with newer models possibly being easier to finance under better conditions.
What happens if a learner driver fails their driving test while having a car on finance?
Failing a driving test does not affect the car finance agreement. The borrower is still required to continue with the repayments as agreed, regardless of their driving test result.
Are there special car finance plans for learner drivers?
While there are no specific car finance plans exclusively for learner drivers, some lenders might offer favourable terms to younger individuals or those with shorter credit histories. It’s advisable to shop offers to find the most suitable one.
