Can I get car finance if I'm a student?

Looking for more freedom in your student life? Getting yourself in the driving seat is made easier with affordable car finance deals

John Evans
Dec 4, 2019

Many students rely on the use of a car as a means of travelling between home and uni and potentially getting to a part-time job, too. University living requires a lot of flexibility and the ability to get wherever you need to be as and when required can be a real bonus, whether it's travelling to and from lectures, or attending work placements, or even just heading home to visit family.

Having to trust your luck with public transport to make these journeys can add a whole load of stress - depending where you live and study - so, if you're looking for an easy life, getting yourself a set of wheels could be a good move. But how do you pay for it?

Whatever your reason for needing a car as a student, it’s important to know you can't finance it using your student loan. This is intended to cover your tuition costs and to help with living expenses - even if some of it might go towards the odd takeaway or night out. So for a car, you’ll need to sort out separate finance, if your savings won't stretch very far.

We’ll assume here you’re a young – that is an 18-to-21-year-old – student, rather than a mature one. This matters because as a mature student you're more likely to have a credit history, whereas you younger students are unlikely to – and that makes getting a loan difficult, but not impossible.

It’s not impossible because there are other factors lenders also take into account when deciding whether to grant a young student a loan. We explain what they are and how you can ease your path to that loan, below.

 

The only serious obstacle you may encounter when applying for a loan is if you are under the age of 18, when your chances of succeeding are almost zero. For you, the bank of mum and dad is probably your only option.

One final word: we talk about your credit rating lower down and how important it is to have a good one. Every loan application you make harms your rating because it looks as though you are making multiple loan applications, so in your search for a loan, keep applications to a minimum until you have an idea of which loan is most likely to be suitable.

Car finance for students: check your credit history

We all have a credit history. When we opened our first bank account, and demonstrated we could use it without going overdrawn, and when we took out a mobile phone contract, and a subscription to a music download service or an entertainment channel, our every financial step was recorded by a credit reference agency. There are three main ones and they use this information to establish our credit worthiness.

Lenders refer to this rating plus the information (address, salary, employer’s details and so on) we provide them with when we apply for a loan.

Everyone is entitled to see what is on their credit history and you can do so via Moneysupermarket’s Credit Monitor or Money Saving Expert’s Credit Club. It’s worth doing because no matter how ‘thin’ your history might be, if it contains a mistake that could jeopardise your rating, you can tell the agency who will check it and, if it agrees, amend your history. That should improve your chances of being approved for car finance.

Get your name on the electoral roll

With few exceptions, by law everyone over the age of 16 must register to vote. Their name goes on what is called the electoral roll. It also gives their address. The chances are that if you’re a young student, your parents will have registered you on the roll and given your home address. This entry will appear on your credit history and help to confirm the address you give on your loan application.

However, as a student, you can also register at your student address, although you can only vote once. Again, it will help your application if you’re also registered at this second address.

Student car finance: work out your income and expenses

Before you apply for a loan, you need to know whether you can afford one and the only way to do that is to review your financial incomings and outgoings. Depending on your circumstances, your student loan will only go so far, so you may be in receipt of a top-up from your parents or a government fund.

Whatever your situation, add your various incomes together and then subtract your expenses (including setting aside some money for emergencies) to see what, if any, surplus you have at the end of each month.

Car finance for students: know your budget

Having done the above, now you know what extra money you need to borrow if you are to have a decent used car. As a guide, good used cars on BuyaCar that are safe, reliable and cheap to run start at just £70 per month plus an initial deposit of less than £430. An example is a Renault Twingo 1.0 SCe Play 5dr.

However, your car costs don't stop there. You need to factor in road tax (in the Twingo’s case, because it doesn't produce much CO2 and it was registered before 1 April 2017, it’s just £20 per year), and servicing and consumables such as tyres. Then there's the big one to consider: insurance.

Depending upon your age, driving history and where you live, this could amount to thousands, so make sure to set some time aside to get insurance quotes, as this could mean the difference between comfortable affording a car and working around the clock and still having no cash left. Insurance costs vary dramatically across different cars, so make sure to get quotes for a range of cars to see which offer the lowest bills - it's not always the cars you expect.

You must allow for these extra costs when calculating what you need to borrow and whether you can afford to borrow it.

Take a part-time job to secure student car finance

We’ll assume you have quite a small surplus remaining after allowing for your essential outgoings and that it won't fund a £70 per month payment plus those extra motoring costs we mentioned. It goes without saying you’re going to need to find another source of money – in other words, a job.

If you're studying, it's likely to be a part-time job but that doesn't matter. It’s what you earn that is important to a lender, rather than the number of hours you work. You will need to have worked for some months to have generated enough payslips for a lender to establish your average income and to be confident that the work has become regular.

For the purposes of your application they’ll only take account of your take-home or net income and not your gross, or pre-tax income. What’s more, responsible lenders will only approve finance that amounts to monthly payments of 25% of your net income.

Car finance for students: find a guarantor

By this stage you’re probably thinking that as a young student, the cards are heavily stacked against you being granted a car loan but there is a way you can improve your chances of being accepted.

You can find yourself a guarantor; someone, probably a close relative such as a parent, who crucially has a good credit history, who is prepared to back your loan by agreeing to continue payments on your behalf should you be unable to make them. It’s important to know that they are not topping up your loan but guaranteeing to step in should you be unable to make payments.

Their presence on your loan application may give your lender the confidence it needs to make you that offer but you and, importantly, your guarantor should remember that if either of you fail to make payments, your car can be seized and if you still fail to pay, you will both go to court and both of your credit ratings will be harmed.

To avoid this, you should put aside sufficient money to cover at least three payments before the start of the contract, so that in the event of a crisis you have time to discuss and make alternative arrangements with your lender.

Student car finance: your options

To keep their costs down, many people choose to finance a new or used car on a scheme called Personal Contract Purchase (PCP).

Here, you pay an initial deposit followed by a series of monthly payments over the length of your contract.

At the end of your agreement, you have three choices: you can hand the car back with nothing more to pay and walk away (provided you've stuck to the pre-agreed mileage limit and the car is in good condition), or you can make the optional final payment to buy it, or you can 'trade it in' for a new car, using any equity that's left in it - should it be worth more than the remaining finance balance - to put towards the finance deposit on your next car.

With PCP finance, it's possible for you to get hold of a decent used car without having to pay huge sums of money up front in order to start driving it.

If you'd prefer to own the car at the end of the contract and are happy with slightly higher monthly payments, another form of car finance is Hire Purchase. As a result, you'll have to pay more per month for the same car than with PCP finance, though you'll end up paying less interest, as you're paying off the finance balance quicker.

Car finance for students: Just Add Fuel deals

Peugeot and Citroen are among the few car makers offering this form of finance, which bundles together all of your motoring costs - including insurance - bar fuel. These are typically available only on new cars and are based on PCP deals normally, bundling all your expenses including insurance, servicing, roadside assistance and so on, in the monthly payments. The only extra you have to pay for is the fuel you use.

With so much included, the monthly payments can look expensive but at least you know there are no other charges to consider – apart from fuel - which is useful when budgeting and planning how much money to borrow.
 

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