A car is one of the most expensive purchases someone can make in their lifetime - second only to perhaps property. It's, therefore, quite common for someone to want to gift another person a car.
More often than not, a gifted car will be from a parent to their child who has recently passed their driving test. They will likely be between the ages of 17-21 and may not have a regular, steady income to afford such an expense.
It's common for a person's first car to be second-hand and many years old, as they can be bought for cheap while having a few more years before they're not suitable for the road. At the point of time when it doesn't run as it used to, the hope will be that the recipient of the gift will be able to afford their vehicle.
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While Personal Contract Purchase (PCP) and Hire Purchase (HP) car finance can buy a used car, it's unlikely that a young person's first car will be financed, for various reasons, including affordability, income, and credit history.
However, it is still possible for a new, young driver to take out car finance if they wish. But, could a parent buying a car for their child also apply for car finance to pay for that vehicle? In this article, we take a look at the options available.
Can you finance a car for someone else?
You can buy a car outright for someone or pay money towards a vehicle to help them, but it is illegal to apply for car finance in your name and allow them to own the car.
It is a fraudulent act, known as fronting, and you could face prison if caught. When a person applies for finance, they provide personal information about themselves to be checked over by the lender and eventually approved or declined.
If you provide your financial history, address, occupation, etc. and get approved for finance, you must be responsible for the car and finance in question.
However, there is a way around buying a car for someone else and paying for the finance on it - you would have to ensure that the finance was in the driver's name and not yours.
There are three options to be able to gift someone a car on finance:
- Co-sign the car finance agreement with the driver you are buying it for
- Set up a direct debit into their account so that the finance payments come directly from their account
- Buy the car outright and gift the vehicle to them that way
What is fronting in car finance?
Fronting in car finance is a fraudulent action where someone pretends to be the main driver of a car to be approved for car finance. It's generally a crime committed by someone covering for someone else who can't get approved for finance due to a lack of income or a poor credit history.
If you have poor credit, the likelihood is if you get approved for car finance, you will get offered a high-interest rate, making your repayments more expensive than they would be for someone with a good credit history.
Lenders increase the APR for those with poor credit because they cannot be certain that the repayment will be made, and help to justify their concerns by making it a little bit more unobtainable for those at risk of doing that.
If caught fronting, you could be hit with a criminal record, six points on your license, and a fine. It's not worth the risk, and even if you do get away with it, you'll only be prolonging the inability for whomever you're fronting for to be approved sooner.
Can you finance a car for your child or partner?
If you are the main driver, some lenders may make an exception and allow this to happen. Although some lenders may be open to doing this, it'll be less hassle for your child or partner to apply for the finance in their name, and if approved, you gift them the money each month to make the repayments.
Ensure to research, be open and honest with the lender, and read the terms and conditions thoroughly before committing to a finance agreement.
Can I co-sign a car on finance?
Few lenders offer this service, so your best bet is to research the available options and liaise directly with them, rather than trying to find a deal with every lender first and then finding out later that they don't offer co-signed agreements.
Once you find a lender that will offer you co-signed finance, you should take some time to weigh up the offers available from competing lenders before making your final decision. You want to get the best deal to suit your needs and budget, and make sure you get approved in the first place.
Once you have found the lender that works best for you, complete the application with the person you are co-signing with, as you will both need to supply your financial and personal details to the lender.
Once accepted, the lender will send you a formal credit agreement to be signed by the pair of you. You should both take plenty of time to read the terms and conditions to ensure everything is satisfactory and be 100% certain you want to go into a co-signed agreement together. After you have signed and submitted it, there will be no going back.