Car finance for part-time workers

Working a part time job but desperate for your own car? Finance is an option, and our expert guide will steer you in the right direction

John Evans
Nov 13, 2019

If you work part-time and are considering a car loan, you may worry that you’re less likely to be accepted for one because of your situation than someone who works full-time. In fact, the number of hours you work is less important to a lender than the overall amount of money you earn, so set your sights on an affordable car and there's every reason you should be able to get finance.

Remember, too, that under the terms of employment law, most part-time workers enjoy the same rights as people in full-time work so apart from earning less money when doing comparable jobs, they are treated identically and should apply for finance no less confidently.

In short, the terms part-time and full-time are just labels. Instead, it’s your salary that matters more to a lender. If you can afford monthly payments on a car, there's a good chance you'll be able to finance one.

 

Part-time car finance: who works part-time?

People work part-time for a range of reasons. Their financial situation may be such that they can afford to work fewer hours. They may require time to care for a relative. They may like the freedom and flexibility of having multiple jobs.

Meanwhile, many part-time workers are students - as they can only spare certain hours - in which case other factors such as age may also need to be considered when applying for a loan.

Whatever your reason for working part-time, you shouldn’t believe the door to a car loan is automatically closed to you. Instead, remember that lenders take into account a range of criteria beyond simply a person’s income and hours of work. Making sure these other factors are in good shape will, as a part-time worker, help your chances of securing that car loan you want.

Car finance: check your credit status

We all have a credit history recorded by at least three major credit reference agencies. The information they hold on us, including current and past loans, our repayment records, county court judgements against us and whether we’re recorded on the electrical roll, helps to determine our credit rating.

Lenders use their own version of this score, in combination with other pieces of information including our age, employment status, and income and expenses information that we provide, to assess whether we qualify for a loan and, if we do, what interest rate they will offer us.

Borrowers have a right to see their credit history and, where they believe there are errors or information is out of date, to suggest corrections. You can check your file via Moneysupermarket’s Credit Monitor or Money Saving Expert’s Credit Club. If you see any errors, notify the relevant reference agency which, if it agrees, must amend your file.

Check your finances to ensure you can afford a loan

Getting your income and expenditure in balance is a key way to start any loan application process. When gauging what you can afford to pay back, lenders typically set around 25% of a person’s take-home income as the limit for monthly payments. The rest of your income they consider to be for your living expenses.

So if monthly payments for the car you want come under that level, you should have a good chance of being approved. However, if they come in at over that, you may need to find a cheaper car, put down a larger deposit, or go for a longer contract to get monthly payments down to an affordable level.

To discover how much spare cash you have available to finance a loan, refer to your latest bank statement and create a list of your typical monthly outgoings. It’s likely to include mortgage or rent, insurance costs, energy bills, clothing, food and entertainment.

Crucially, don't forget to include the costs (insurance, maintenance and fuel) of running your new car, since the lender will want to see that you have taken these into account, too.

The point is, a lender needs to be sure you can afford the loan you’re applying for – and you need to know, too.

Get your finances straight

Checking your finances will have given you the opportunity to see if there are any existing loans you can settle, or subscriptions, insurances and contracts you can cancel, assuming they come with no heavy termination penalties.

Cutting these regular costs should free up more borrowing capacity, although it is vital you channel some of it towards your living expenses, as well as a surplus for emergencies.

Car finance: be realistic about your part-time income

As we said earlier, lenders are more interested in your income than the hours you work. That’s your current income, by the way. Any additional money you claim you can earn in the future by virtue of going full-time - for instance if you're coming to the end of a university course - is irrelevant to them, as they need proof of your income to date.

Lenders will focus only on your current employment situation and will want to see recent pay slips to establish your typical income. This focus on your present situation means that, for example, someone working 10 hours a week at present but who claims they will be working 30 hours from next month, will be considered for a loan based only on their current 10 hours of work.

If you're looking to borrow a larger amount, therefore, it's wise to wait until you've started working longer hours and have evidence, so you have a greater likelihood of being approved for the amount you're after.

Your employment record

Despite having equal status under the law, part-time workers may be regarded by lenders as being in less secure employment or in receipt of fewer workplace benefits than their full-time colleagues.

For this reason, it will help your application if you can demonstrate a reasonably long and settled employment record, just as a full-time applicant must, and demonstrate a clear knowledge of the terms of your employment contract.

Guarantor car finance for part-time workers

Another option is guarantor car finance. A guarantor is someone who guarantees your loan will be repaid, by stepping in to continue making repayments on your behalf should you be unable to. They can help ease your path to that car loan you want. However, to be considered by a lender, they need to have a good credit rating.

A family member is the most likely guarantor; someone who trusts you to take out a loan in good faith and who the lender believes can be relied upon to abide by their responsibility. It’s important to know that the guarantor’s role is not to top up your repayment money but, assuming they have a good credit rating, to improve your credit worthiness.

Only your income, and not yours plus theirs combined, will be taken into account by the lender, and repayments will remain your responsibility until, should you be unable to make them, they become the responsibility of the guarantor.

This person should understand that if they fail to make the repayments they, as well as you, will be pursued for monies owed, if necessary through the courts and their credit rating will suffer as a consequence.

Your car finance options

If you want the best car for the lowest monthly payments, you may want to consider a type of finance called Personal Contract Purchase (PCP). With this option, your monthly payments only cover a portion of the car’s price, meaning your money goes further. You simply place a deposit, followed by a series of payments - which work out smaller than they would be with an equivalent loan.

In contrast to a typical loan, you don't own the car at the end of the contract, however. If you want to buy it, you then make what's called the optional final payment. But, if you want to change into another car at this stage, or walk away with nothing left to pay - provided the car is in good condition and you've stuck to the pre-agreed mileage allowance - you can simply hand the keys back.

Other forms of finance include Hire Purchase - where you put down a deposit, followed by a series of monthly payments and automatically own the car at the end of the contract - but because your monthly payment cover the whole cost of the car they work out higher, so you get an older car for the same monthly payment compared with PCP.

Just Add Fuel

Peugeot and Citroen are among the car makers offering what's known as Just Add Fuel. This type of deal is based on a PCP, the difference being that all your motoring expenses including insurance and servicing, are bundled into the deal. The only extra you have to pay for is the fuel you use.

That means that at first glance this works out more expensive than a traditional PCP - as you get other things thrown in - but it’s no more so than were you to pay these costs independently. Furthermore, Just Add Fuel offers help you to work out exactly what your car is going to cost you each month.

 

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