How Easy is it to Obtain Finance as a Young Driver?
Every young person who passes their driving test is going to want to buy a car, unless you already have one and are looking for an upgrade! Well, if you’re looking into getting a new car, or a preloved one that is not too old, you may need to get the car on finance. Here I will discuss the options available and why they may or may not be a good idea.
What is Finance?
Let’s start off with the basics. According to Google, finance is “the management of large amounts of money.” This usually relates to how you pay for something, e.g. a car, or a mobile phone. What finance allows you to do is spread the cost of what you are buying over a set period of time. Usually, on top of this interest is added at a set APR (annual percentage rate). This is one of the downsides to finance as it means you will end up paying more for the product than if you bought it in one big lump sum.
Can you get finance at 17 years old?
Right, here’s the main issue I came across. A lot of people in the UK will pass their test aged 17 and then want to buy a car. Finance companies and banks will not allow for under 18 year olds to have finance agreements as they are not yet considered a legal adult. This would be the same if the 17 year old was looking into leasing a car. Even if they have a full-time job and clearly have enough money going into their account to afford the lease price as well as insurance etc. the finance company who the lease is through will not approve you. Just by looking at your age you will get declined and not even considered.
Can you get finance at 18 years old?
Yes, you can, however it will not be easy, as whoever the finance is through will obviously be checking your credit score, which at age 18 will be very thin if it even exists at all. You may get accepted if you have a decent income consistently coming in every month and you rarely, or never, run low on money in your accounts. If not, then unfortunately it’s going to be the waiting game until your credit score builds up so the finance company is more likely to approve you for credit.
Your finance options as a young driver
Personal Contract Purchase - you must be 18 to get a finance agreement
Contract Hire - you must be 18 to lease a car
Outright payment - available to anyone that can afford it
Hire Purchase - You will own the vehicle at the end of the finance agreement
What is the difference between finance and leasing?
With leasing, at the end of your contract, however long that may be, as the vehicle is “rented” it gets returned to the leasing company. With finance, depending on what sort of finance you get, the vehicle may go back or you may have an optional payment at the end of the contract known as a balloon payment which allows you to keep the vehicle at the end. This is known as PCP (Personal Contract Purchase). Finance is available on all new and used vehicles, just like leasing is, through particular companies. Here at Rivervale you can lease or buy new and used cars.
What are the advantages of finance?
You don’t have to pay a massive lump sum all in one go. This is the main reason why a lot of cars are bought on finance whether they be new or used. There are also many finance options available so I’m sure at least one of them would suit you. Finance can also be very flexible, where you can choose the length of your agreement, initial deposit and annual mileage if applicable. Much like leasing, finance also means you will be able to afford a much newer, nicer car than buying a cheaper, used car in one payment. With PCP, you have the option to purchase the car at the end of the contract or return it and start again with a different finance agreement on a different car (mileage and conditions apply).
What are the disadvantages of finance?
Paying interest means that you will end up paying more for the car than if you paid for it upfront. You may also not be accepted for finance if you are young and or have a bad credit score. If you fail to keep up with payments then you can harm your credit score and therefore make it much harder for the future when you need to take out a bank loan or get finance on future products, such as a mortgage. A bad credit score is never a good thing and it can be hard to rectify.
Other alternatives to buy a car
Other alternatives would include buying an older used car as it will be much cheaper. That way you may be able to afford to pay for it upfront and don’t have to worry about finance agreements. A lot of people prefer this anyway as they don’t have monthly payments going out all of the time. Aside from this you could get insured as a named driver on someone else’s car. This would mean you don’t have to buy a car at all. The issue is that if you both need the car at the same time then that will not work. You will also be down on the insurance as a “named driver” so you cannot benefit from building up your own no claims discount levels.
In summary, there are upsides and downsides to buying a car through finance or leasing one. It really does depend on an individual’s situation in terms of what they can afford in one go, what their monthly income is and what car they are looking for. If you need any more advice on finance options or leasing options, do not hesitate to call one of our account managers on 01273 433 480 for more information.
Do you think it is best for a young driver to purchase a car or get one on finance/lease?
The comments above do not necessarily reflect Rivervale's views unless clearly stated.