If you’re a young driver that has recently passed their test, and is all set for university or other means of higher education, then perhaps purchasing a car is on the agenda.
You’ll have more options for travel, and you wouldn’t have to rely on public transport to get you from A to B. Many students may need a car to travel around, either from home or university living, but finding a car that fits into your price range can be difficult when still studying.
Student costs at university, especially, can be hard to manage; with so many things to cover like books and day-to-day living, it can be hard to find money to spare.
Adding a car into the mix, along with your other monthly expenses, can be overwhelming, as you’re looking to minimise the number of up-front payments you need to make. Nevertheless, with student car finance, you can cover the costs of your car in smaller chunks, and without the need to stretch your budget too far.
Our guide is here to explain how, as a student, you could get your hands on a car by focusing on the following:
- What is student car finance?
- How can I get student car finance?
- What types of car finance are available?
Student car finance is a great way to buy a new car on a budget. If you can’t buy a car outright, then car finance might be your answer. Through a car finance deal, you can pay off your car through low monthly payments and spread the cost over time.
Additionally, the contract between you and the finance lender can be easily tailored to your requirements. Speaking with a finance broker or car dealer will help you work out the details of how this can be arranged.
Student car finance is easy to apply for, but first, you must be prepared to go through the application process. There will be an essential credit check involved, as the credit lender will need to trust that you can make the repayments. As such, you must demonstrate that you can pay off the money on time.
Show evidence of income
To get car finance, you must provide evidence that you work or have a steady income. Many car finance lenders will not approve credit for students due to a lack of income. While many students will have part-time work, if your available income allows you to cover the cost of car finance, then this will help with approval – any student loans & grants will also count at this point.
Improve your credit score
You may also need to work on improving your credit score. As many students might not have had the time to build up a credit profile, young drivers will often be seen as having no credit, or even worse, bad credit. Thankfully, there are some easy steps you can take to improve your score, and car finance on bad credit is always available through specialist lenders.
Here are some examples of ways to improve your credit rating:
- Get a mobile phone contract
Yes, something as simple as paying a mobile phone bill can improve your credit rating dramatically. As long as the contract is in your name and you’re paying it off monthly, this will play to your advantage. This is because it shows a commitment to paying off money owed – something that will reflect well when a car company comes to check your credit profile.
- Register on the electoral roll:
You can also register on the electoral roll – as credit check companies will see your information and link it back to you. This makes the process simpler, as they can see your information more easily and credit check companies will reward you for your efforts.
- Get a bank account credit card:
With a student bank account, you may be given the option to start a credit card with a low credit limit. By using this to pay off small, manageable payments, you can show a responsibility to pay off your expenses on time.
There are many types of car finance, so finding the right one for you is very important.
Where some are rigid and aimed towards car ownership, others are more flexible and can be cheaper due to deferred cost being placed in an optional final payment.
There is also the importance of being able to repay. You can opt for a guarantor or a joint application with a parent. This will improve your chances of gaining finance, as this will demonstrate to the broker that you are willing to pay, no matter what happens.
With so many types of finance to choose from, it can be easy to get confused. Here we offer a brief description of the two main options you’ll want to consider:
- Hire Purchase
Hire Purchase is ideal if you want to own a car. You can put down a low deposit contribution and have a fixed interest rate; this means you’ll know exactly what you’re paying every month. You can also adjust the length of term, so your monthly payments will be even less, but keep in mind that this will increase the amount of interest paid over the course of the agreement.
By doing this, you can properly manage your finances, whilst taking into account the cost of your overall budget. You won’t own the car until you’ve made your final payment, which means that if you struggle to make the payments, your car company could take the car back off you. Make sure that you have the ability to make the repayments or a guarantor who can pay on your behalf.
- Personal Contract Purchase
Personal Contract Purchase is a much more common option these days. With PCP, you can have more flexibility when it comes to the end of your contract. If you’re not happy with the car, or just want to change to another, you can return or part-exchange the vehicle.
However, if you’re happy with the vehicle and want to make it yours, then you can pay the optional final payment to take ownership.
If you do decide to buy at the end of your agreement, the final payment will be in the £1,000s, so keep this in mind when planning your budget for the long term.
So there you have it – the ins and outs of student car finance – if you’re in a position to get yourself a motor when studying at university or college, it can be quite the benefit. For those who might need to take action to be in a stronger position, hopefully the above will help kick-start a strong credit rating for the future.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.