Beginners Guide to Car Finance for Young Drivers

If you're a new young driver, getting car finance is not as easy as it sounds.

If you've recently passed your driving test, congratulations. There's no better feeling than the driving examiner telling you you have passed and handing over your certificate.

Now you have passed, you'll be thinking about the next steps. You won't want to waste your brand-new superpower of being able to drive a car unsupervised, so you need a set of wheels to get you going.

Long gone are the times of asking your parents or friends for a lift; you can do that yourself now. Unfortunately, though, a car is one of the most expensive things you'll ever buy in your lifetime, especially if you're in your late teens.

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If you have saved up to buy yourself a car, that is an achievement. You may even be lucky enough to be gifted by family members to get you out on the road more quickly.

If like many, you can't afford to buy a vehicle outright or have a family member gift it, you may need to look at alternative options such as car finance. 

Car finance is the most popular way of buying a new car. 90% of new cars get bought using some finance plan. While that is an option for many, it can be much harder for young drivers, which we will explain in detail below.

Why is it difficult for young drivers to get car finance?

Young drivers can get car finance, but it can be difficult due to affordability and dependent on lenders. Most young drivers between the ages of 18-21 haven't had time to build up much of a credit history which is one of the factors when it comes to applying - and being approved - for car finance.

If you're earning a steady monthly income and have a relatively good credit score, it will be much easier to get approved for finance than if you have no or a low-income job and poor credit.

If you're a student, it may be even more difficult because you will likely already be relying on your student loan to live, and if you do have a job, it's probably only part-time to help give you a bit more money to live and enjoy life.

How can young drivers get car finance?

If you are 17 and have just passed your driving test, unfortunately, you have to be 18 years old to sign a credit agreement, so you may have to wait a little bit longer to buy a car using finance.

Once you turn 18, even though your options become more available, there's no guarantee that you'll be able to get approved for a car finance loan. It will be dependent on your situation and the lender's requirements.

The best option for you to do at this stage is to start building your credit history. Paying for your mobile phone contract will help show lenders that you can make monthly repayments on time.


Applying for a credit card and using it carefully is also a great way to build credit and show you're able to manage repayments, particularly when you buy little and often and pay it off as soon as possible.

If you miss a payment, however, that could have severe repercussions and drastically reduce your credit score, making it even harder to apply for loans now and in the future.

Some lenders specifically work to help young drivers and students get car finance, so it's worth researching to find out which lenders would be best to apply to.

Remember, too many hard credit checks and applications can harm your credit history, as other lenders can see these and be less inclined to approve your loan if they see others have rejected you.

What car finance options are open to young drivers?

As long as you are over the age of 18, there are three potential options for young drivers that wish to take out a car finance loan to be able to buy their first vehicle.

Personal Contract Hire (PCH)

Personal Contract Hire (PCH) is an agreement that allows you to lease a car for a long period - typically between 12-48 months.

You would expect to pay a deposit at the beginning of the loan - typically 3-9 months' worth of the agreed monthly repayments within the deal, before making standard fixed monthly repayments until the end of the contract.

At the end of the agreement, you hand the car back and walk away without paying a penny more. It's an option for those that want the flexibility of having a car for several years without the commitment of owning it outright. It also gives you the freedom to get into something new regularly.

You can discover more about the different car financial terms and options in our key terms glossary.

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Personal Loan

Taking out a personal loan, generally with your bank, means that you will own the car outright from the get-go. You wouldn't be required to pay a deposit because you are loaning the money to pay for the car there and then.

Although this is an option for those who want to own the car from the start, the fixed monthly repayments will likely be higher than if you took out a Personal Contract Purchase (PCP), Hire Purchase (HP), or PCH.

A young person taking out a personal loan will likely only be able to borrow a limited amount which could result in there being few cars to choose from at a lower budget than you have.

You'd also likely be offered a loan with a higher interest rate as you are high-risk, given that you probably have a limited credit history.

Guarantor Loan

A guarantor loan is where a family member with a good credit score is added to your application and is responsible for your financial loan should you be unable to make payments for whatever reason.

A guarantor loan could be a good option if you have a poor credit history and a family member is willing to help should you get into any financial difficulty.

If you can't make a repayment, and your guarantor cannot do so either, you will significantly reduce your credit scores and ability to borrow in the future.


How to afford a car at 18?

There are several options available to 18 year olds that want to get a car on finance. They could get a Personal Contract Hire (PCH) and lease a car for a set period of time. They could take out a personal loan and buy the car outright, making monthly repayments to their bank. Or they could add a guarantor to their loan who steps in on your behalf to make repayments if you are unable.

Can an 18 year old get finance on a car?

Car finance lenders do offer car finance deals for young drivers. However, it may be difficult to get a loan without some credit history behind your name. You should aim to build this up as soon as possible to increase your chances of approval.

Can I get a loan at 18 with no credit?

There are ways around getting a car finance loan at 18 without credit, though it isn't easy. The best way would be to apply using a guarantor with a good credit score, who steps in if you can't make repayments.