So, if you’ve never had car finance before, what do you need to know and what should you be considering?
If you’ve passed your test and you’re still 17, unfortunately you can’t apply for finance yet as 18 is the minimum age for credit applications in the UK. There are still some things you can do to prepare however, before you turn 18. Firstly, check that you’re on the electoral roll as this is one of the checks a lender will do to verify your identity. You should try to save some money for a deposit towards your car. Having a larger deposit can reduce your monthly payments or shorten the period of your loan when you do find a car.
Whilst you might have your heart set on a particular car, make sure you spend some time doing your research on it. You should consider things such as the running costs and how much it will be to insure, as this can be quite expensive for a new driver. You’re going to have to factor-in service and maintenance costs as most cars will require one service per year, with an annual MOT required for every car over three years old.
Once you turn 18 you can legally apply for credit in the UK, which will mean you’re eligible for car finance.
At this age, the lender may also consider the type of car you’re buying and if it’s suitable for you. Your credit history will be reviewed however you may not have any if you’ve just turned 18. Whilst some lenders will use an automated credit search to check your history, some lenders, such as ourselves, will manually assess your application which means an experienced underwriter will review your case. For someone with no to little credit history, this can be an advantage as you may be able to provide other supporting information such as wage slips or bank statements to support your application.
If you’ve just turned 18, you may decide to ask your parents for help with your finance. If you choose to have a working parent as part of your agreement as a joint hirer, they must agree to take joint liability for your agreement. This way, a lender can assess their credit history and circumstances to help strengthen your application. You should be aware however, that whilst you’ll be responsible for making and maintaining your repayments, should you fail to pay or fall into arrears, then this will have an impact upon both yours and the joint hirer’s credit history.
As you get older, it generally becomes easier for you to obtain credit as you build up your credit profile and history, however this is dependant upon you remaining in regular employment and ensuring you meet all of your financial commitments. If you do fail to maintain your commitments, or go through periods of financial difficulty, then it may mean you are unable to obtain credit and lenders may restrict the amount you are able to borrow or may offer you a loan at a higher rate impacting upon what your repayments will be. No matter how old you are, lenders will still have to conduct fraud and affordability checks to ensure your loan will be affordable for you.
There’s a lot to consider when you’re looking at car finance. Firstly, is the monthly payment affordable to you and if something in your circumstances change, will it still be affordable? If it’s going to be a stretch for you, it might be worth shopping around to find a cheaper car or save up some more deposit to reduce your payments. You should also consider the type of car finance agreement you’re looking at as they all have different features and benefits. An agreement with a final or balloon payment, such as Lease Purchase, may offer a lower monthly payment, but is it the right product for you and your circumstances?
If you’ve found your first car and would like to know how much the repayments will be on a finance agreement, visit our finance calculator today to find out more.