Car finance for drivers with a provisional licence
Have a provisional licence but want to finance a car now? There are several options available. Keep reading to see which works best for you
Getting your full driving licence can be a challenging and nerve-wracking experience, but what you might not realise is that applying for car finance to pay for your wheels when you haven’t passed your test can be just as challenging.
For a start, there are lots of lenders who simply won’t consider you. Then there’s the fact that you can be faced with stricter borrowing limits, higher monthly payment rates - due to increased interest charges - and even limits on the sort of car you can get.
However, there are lenders out there who will extend credit to provisional licence holders, and here we’ll go through what you can expect from them. We’ll also take a look at what you can do to maximise your chances of getting accepted for a car finance deal with a provisional driving licence.
You can’t borrow from as wide a range of lenders
One of the biggest snags in getting car finance as a provisional licence holder is the fact that the number of lenders willing to provide finance to you is limited. As a result, this tends to mean that APR charges - essentially the interest you pay on the finance, along with any compulsory finance charges - are higher, making monthly payments more expensive than they would otherwise be.
Even with the lenders that do accept provisional licences, there can often be further restrictions. For example, lenders will often limit the amount you can borrow - typically this can be in the region of £10,000-£12,000, though we have seen lending limits as low as £7,000. Lenders can also put restrictions on the type of car you get. Generally, they’re looking out for smaller, economical, cars with low insurance costs - essentially the sort of car that new drivers would tend to go for anyway.
Another potential issue is the amount of time you’ve held a provisional licence for - BuyaCar’s panel of lenders, for example, won’t accept provisional licences that are more than five years old.
Finally, there’s the issue of a deposit. Often when taking out car finance, you can get away with little or no deposit, with the only consequence of this being a higher monthly payment - as the smaller your deposit, the more you're borrowing. However, if you have a provisional licence, you’ll often need a deposit of around 10% of the amount you intend to borrow.
Provisional licence car finance: why age is important
With provisional licence holders, most are quite young, so it isn’t necessarily the fact that they hold a provisional licence that prevents them from getting approved for vehicle finance - it’s generally because their age means that they are likely to have less evidence of stable employment and income and/or a short and patchy credit record.
For older provisional licence holders, things can be a little easier, mostly because older people tend to have better credit scores and are seen as less of a financial risk by lenders. That said, there will still be restrictions on the amount you’ll be able to borrow, and the type of car you could get approved for, no matter what age you are or how good your credit rating.
How to maximise your chance of getting car finance with a provisional licence
Go for Hire Purchase rather than PCP finance
Since monthly payments on a Hire Purchase finance deal go towards paying off the full value of a car, your outstanding finance balance drops faster with Hire Purchase than with an equivalent PCP finance deal, where your deposit and monthly payment effectively only cover the amount of value the car is expected to lose during the contract period. With PCP finance you'd still need to make a large optional final payment once you'd made all of the monthly payments, if you wanted to take ownership.
As a result, lenders perceive Hire Purchase finance deals as less of a risk than equivalent PCP finance contracts. Therefore, you’re more likely to find a lender willing to offer money to higher-risk categories - such as holders of provisional licences - with Hire Purchase.
Guarantor car finance: an option for provisional licence holders
Guarantor car finance is generally an option for those with a low credit rating or a patchy employment history, as it enables you to take out finance with assistance from a guarantor with a higher credit score. Since provisional licence holders also often have lower credit scores (though this is not always the case), guarantor finance is a good potential alternative.
With this type of finance, the lender will ask a guarantor to vouch for you, and to effectively promise to stand in for you if you can’t make payments. It’s worth noting that a guarantor must generally be a close family member who lives in the same household as you, but who is not financially connected to you (as a partner might be).
Make sure your credit score is as good as possible
If you’re looking to boost your credit rating in order to increase your chances of getting accepted for car finance, then there are a few things you can do. Firstly, make sure you are on the UK electoral roll (which means that you are registered to vote in elections).
Next, make sure you use some form of credit - like a phone contract or a credit card - on a regular basis, but pay the balance off on time every month. Finally, avoid making multiple formal credit applications in a short period of time, as this can have a dramatic adverse affect on your credit score, with lenders perceiving that you're in a dire financial situation.