Can I get car finance if I'm retired?
Worried about whether you can get car finance now you're retired? Fear not, there are several options. Keep reading for the details
Retirement is a time of life when you can finally do many of the things you’ve been putting off for donkeys' years. It could be time to start seeing more of your friends and family, visiting bucket list destinations or simply enjoying the independence of not having to go to the office every day. A key part of this freedom is likely to be the mobility provided by a car.
However, few of us have the money to buy a new or nearly new car outright, even when we’re working. It might be possible in retirement if you’ve been able to save up a chunk of cash ahead of finishing work or taken part of your pension as a tax-free lump sum. However, even if that is the case, you may not want to put cash that you might need at a later date into a new car that'll lose value quickly.
Fortunately, car finance is another option; even as a retired person, you can borrow money. This is because, whether working or retired, it's only your credit status, income and outgoings that really matter to lenders. Being retired you might not think you have an income but you probably do, whether in the form of a private and/or state pension, interest on savings or even rental income from a property.
Rather than pursuing an unsecured loan, it's probably easier to get the money you need by applying for a secured loan linked directly to the vehicle you want. From the lender’s perspective, if the worst were to happen and you could no longer make the payments due, it can seize the car and recover its costs and you have an extra level of protection.
No matter what your current position, it may be possible to secure yourself a car finance deal if you don't have the cash to spare. Click on the link below that best reflects your situation to find out more about your options, or read on for more information about car finance for retired people:
Retired car finance: check your credit history
Just as we all need a health check from time to time, so does our credit record. This is the file lenders refer to when considering a loan application. It contains key personal details such as your name, address, whether you’re on the electoral roll and any county court judgements (CCJs) against you.
It also records financial information relating to existing loans you may have, current account overdrafts, any loan defaults and even the number of loan applications you’ve made in recent months, although not the results of those applications. Anything negative such as not being on the electoral register (as this helps to prove your address) or having a CCJ (which shows that you have failed to pay existing debts in the past) makes you less attractive to lenders. However, mistakes happen and a file can be incorrect.
For this reason, you should ask the three main credit reference agencies - Experian, Equifax and Trans Union - for access to your file so you can check it and notify them of any errors. If they agree, they’ll amend your file and your rating should improve, although not overnight.
The service is inexpensive and even free if you use Moneysupermarket’s Credit Monitor or Money Saving Expert’s Credit Club. Address any issues with your file and you can start improving your financial health, increasing your chances of being approved for finance and being able to take advantage of the lowest interest rates.
Cut your debts, boost your car finance odds
We all accumulate direct debits or standing orders for things we rarely use or don't need, and often even loans we could easily settle. If you’re retired and wanting to borrow a large sum for a car, it makes sense to cut back on those things you no longer require or could easily pay off. This way, you’ll free up credit space and present a better case to lenders.
Do this and you'll be able to secure more credit to get the car you want, rather than having to settle for something that isn't quite right. Incidentally, depending on their value, having other loans is not necessarily a bad thing - assuming you haven’t missed any payments - as this demonstrates to a lender that you can manage loans responsibly.
Car finance on a pension: weigh up your income
When you were working, you probably had one main source of income - your job. However, if you’ve planned things well for retirement you may have several sources including pensions (workplace and state), interest on savings and investments, rental income from a property and maybe even part-time work.
Gather together all the information including bank statements relating to these various incomes so that you have a picture of your total income. Whatever your sources of income, it’s important to be able to demonstrate that they are regular and consistent, and you are capable of financing a loan over an extended period.
Car finance when retired: know your limits
You will be financing any loan from your net, or post-tax income (remember, being retired doesn't absolve you from paying tax if your income is high enough), so it’s important to know what that figure is.
To calculate it, gather together all the statements detailing the tax due on your various sources of income and deduct the resulting figure from your total income. Alternatively, if you’ve completed a self-assessment tax return in the past year, this will provide an up-to-date picture of your affairs that you can refer to and which will help the lender judge how safe a lending risk you are.
Remember also to deduct your other outgoings - for example, your monthly living expenses - from your net income and leave some spare for unplanned costs so that you know what you can afford to borrow.
As a rule, 25% of your net monthly income is as much as a lender is likely to offer you, meaning that if you have a net monthly income of £2,000, for instance, you can expect to be able to finance a car costing up to £500 per month.
Help yourself by paying a deposit
If you can, putting a deposit towards the cost of the car will not only mean you have less to borrow and your monthly payments will therefore be lower, but it will also reduce the risk you pose to the lender, making them more likely to extend credit to you.
So, if you can spare several thousand pounds to put towards a deposit, this could mean the difference between getting yourself the keys to a desirable car for an affordable monthly payment and being declined as the lender deems the monthly payments too high for your net income.
Retired car finance: review the contract length
Depending on your age and circumstances, it may help your application if you keep the contract term to a shorter length. This will have an impact on the amount you pay each month - shorter contracts typically mean higher monthly payments.
As a result, this might mean you are not able to afford such an expensive car, but it could mean the difference between you being accepted for a loan or not. Furthermore, going for a shorter contract means you'll have less interest to pay, as you're borrowing the money for less time.
Choose a used car for the best chances
If you like the idea of a new car but can't afford the monthly payments or you can't get approved for the car you want, it's well worth considering a used car, as the cost is likely to be far less. Even if you go for a low-mileage one-year-old car, it could still save you thousands compared with a brand new car.
A one- or two-year-old car could potentially save you £5,000 or even £10,000 on the list price in many cases. That could potentially slash hundreds off of your monthly payments, mean the difference between being declined and approved for finance and the car is likely to still feel pretty new anyway.
Get car finance right first time
We advised earlier that if you make multiple formal loan applications in a short space of time, credit reference agencies will mark you down, making it harder for you to get the loan you want. They don't record the results of your applications, just the fact that you have made them, so multiple applications give the impression that you are borrowing money from a number of sources and may be in a poor financial position.
To avoid this, prepare in advance by doing all the things we’ve outlined above to increase your chances of getting a loan at your first attempt, although it's worth checking the likely APR charges and other details are competitive before applying.