Getting your provisional driving license is one of the most exciting things a young person does, and it becomes even more real when you can start taking driving lessons from your 17th birthday.
There's no better feeling that you're starting to become independent than learning to drive and making steady progress each session before booking in for your driving test.
While you're in the stages of learning, you will probably start to imagine what car you will drive once you have passed, especially if you don't already have one lined up.
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While many people opt for the cheapest possible vehicle they can find and pay for it with cash, some may want a motor that is a little newer, or they don't have the money saved to buy it outright.
Therefore, car finance is a great option for those that want to buy a car and spread the payments out over several years. However, it can be confusing whether or not those with a provisional license are eligible to apply for finance.
In this article, we explore everything there is to know about car finance for people with a provisional license, and the steps to help you understand what you can and can't do.
Applying for car finance with bad credit
Most people that hold a provisional license are in their late teens, and generally, young people will have bad credit because they simply haven't built up enough credit history.
It's difficult to build up credit when you are younger because you likely don't have any debts or have to pay anything back like a mortgage or other larger finance agreements.
However, there are a few things that you can do to help yourself build your credit to give you a better chance of being approved for car finance or other loans you may wish to take out.
- If you have a mobile phone on contract, ensure it's in your name rather than your parents'. Being able to show a lender that you make fixed monthly payments to pay your phone contract is a good start.
- You should apply for a credit card but be sensible with it. Avoid using it for big payments that will take a while to pay off. Instead, use it on smaller purchases that you can pay off immediately or when you get your latest statement. It will show that you are sensible with your credit usage and are willing and able to make repayments.
- Get yourself on the electoral roll. Whether you're living with your parents, at university accommodation, or you're able to rent or buy a property yourself, being able to prove that you have a fixed address is a good sign for lenders.
- Avoid applying for multiple credit loans or cards in a short space of time. Doing this will appear on your credit history and could deter lenders from approving you for loans if they see you're trying to take out so many.
What types of car finance are available for provisional license holders?
The two main types of car finance available for those with a provisional license are Hire Purchase (HP) and Personal Contract Purchase (PCP).
HP finance is secured against the car, but at the end of your agreement, the vehicle belongs to you once you've paid the 'Option to Purchase' fee.
PCP finance is secured against the car, but you don't own the car automatically at the end of your agreement. You will have an optional final payment known as a balloon payment that you can pay to own the vehicle outright, or you can hand the car back to the finance company.
If you want to keep the car but can't afford the balloon payment, you can refinance to break the balloon down into more manageable chunks.
Should I use a guarantor when applying for car finance with a provisional license?
A guarantor could be an option for a young person to enable them to get car finance. A guarantor is somebody who steps in to cover your finance payment if you can't make it.
A guarantor is typically a close family member with a good credit history. However, when you apply with a guarantor, lenders will credit check your guarantor, and if they have poor credit, you won't be able to get approved.
If you were to fail to make a payment and your guarantor had to step in, if they were also unable to fulfil the payment, both credit scores would be impacted, and you may both have problems making future loan applications.
To give yourself a better chance of being approved, you should ensure you have the following in place:
- A regular income
- Be able to pay a deposit to reduce the amount you borrow and subsequently repay.
- Look for a car that is affordable with lower monthly repayments.
Should I make a joint car finance application with a provisional license?
If you have a provisional license and want to get a car on finance, a joint application could be a great way to ensure you get approved and into the vehicle you require.
If you have a partner living at the same address or a parent willing to get a car with you, it could be a good option. You should be aware that some lenders will only approve joint loan applications if both people live at the same address.
If the person you are applying alongside has a good credit history and a full UK driving license, your chances of being approved improve than if you were to go it alone.
A joint application differs from a guarantor loan because in a joint application, both names are registered on the agreement, and you are both in charge of ensuring the monthly repayments are made.
Whereas a guarantor is not officially on the application, they step in and make payments on your behalf if you can't. It's an assurance policy that makes lenders more inclined to approve those with bad credit.
Having a provisional license is an exciting time, but before you buy your first car, consider the options available and don't stretch yourself too far.