Can I get car finance if I'm a student?

Many students rely on a car as a means of travelling home from university and vice versa plus it can also be very useful for getting to a part-time job if you have the option of travelling further afield. But can you get student car finance?

Whatever your reason for needing a car as a student, it’s wise not to blow your entire student loan on a set of wheels. These loans are to cover your tuition costs and to help with living expenses - even if some of it might go towards the odd takeaway - and spending this on a car could cause you serious financial issues.

To fund a car you’ll need to sort out separate finance if your savings won't stretch very far. We’ll assume you’re a young - that is an 18-to-21-year-old - student here rather than a mature one. This makes a difference because mature students are more likely to have a credit history, whereas younger students are unlikely to, and that makes getting a loan more difficult.

It’s not impossible, though, because there are other factors lenders also take into account when deciding whether to grant car finance to a younger student. We'll explain what these are and how you can ease your path to car finance.

The only serious obstacle you may encounter when applying for a loan is if you are under the age of 18, at which point your chances of succeeding are almost zero. For you, the bank of mum and dad or buying a car with whatever cash you have, are probably your only options.

Student car finance: your options

To keep their costs down, many people choose to finance a new or used car using Personal Contract Purchase (PCP). Here, you pay an initial deposit followed by a series of monthly payments over the length of your contract.

At the end of a PCP contract, you have three choices. Firstly you can hand the car back with nothing more to pay and walk away provided you've stuck to the pre-agreed mileage limit and kept the car in good condition.

Secondly you can make the optional final payment to buy it. Finally you can 'trade it in' for a new car, using any equity that's left in it - should it be worth more than the remaining finance balance - to put towards the finance deposit on your next car.

With PCP finance, it's possible for you to get hold of a decent used car without having to pay huge sums of money upfront in order to start driving it.

If you'd prefer to automatically own the car at the end of the contract, without a big final lump sum to cover, and are happy with slightly higher monthly payments, another form of car finance is Hire Purchase.

You'll have to pay more per month for the same car than with PCP finance, though you'll end up paying less interest, as you're paying off the finance balance quicker.

Student car finance: check your credit history

We all have a credit history. When we opened our first bank account and demonstrated we could use it without going overdrawn, when we took out a mobile phone contract or a Netflix subscription. Our every financial step is recorded by a credit reference agency. 

Lenders refer to this rating plus the information (address, salary, employer’s details and so on) that we provide them with when we apply for a loan.

Everyone is entitled to see what is in their credit history and you can do so via ClearScore, Credit Karma, Moneysupermarket’s Credit Monitor or Money Saving Expert’s Credit Club.

It’s worth doing this, because no matter how ‘thin’ your history might be, if it contains a mistake that could jeopardise your rating, you can tell the agency, which will then investigate. If it agrees, it will amend your history. This should improve your chances of being approved for car finance.

Get your name on the electoral roll

With few exceptions, by law everyone over the age of 16 must register to vote. Their name goes on what is called the electoral roll. It also gives their address. The chances are that if you’re a young student, your parents will have registered you on the roll and given your home address. This entry will appear on your credit history and help to confirm the address you give on your loan application.

However, as a student, you can also register at your student address, although you can only vote once. Again, it will help your application if you’re also registered at this second address.

Student car finance: work out your income and expenses

Before you apply for a loan, you need to know whether you can afford one and the only way to do that is to review your financial incomings and outgoings. Depending on your circumstances, your student loan will only go so far, so you may be in receipt of a top-up from your parents or a government fund.

Whatever your situation, add your various incomes together and then subtract your expenses (including setting aside some money for emergencies) to see what, if any, surplus you have at the end of each month.

Student car finance: know your budget

Having done the above, now you know what extra money you need to borrow if you are to have a decent used car. As a ballpark good used cars that are safe, reliable and cheap to run can start at around £100 per month on PCP finance plus an initial deposit of approximately £1000.

However, your car costs don't stop there. You need to factor in road tax, servicing, and consumables such as tyres. Then there's the big one to consider: car insurance.

Depending upon your age, driving history and where you live, this could amount to thousands, so make sure to set some time aside to get insurance quotes. This could mean the difference between comfortably affording a car and working around the clock and still having no cash left.

Insurance costs vary dramatically across different cars, so make sure to get quotes for a range of cars to see which offer the lowest bills - it's not always the cars you expect. Ideally you'll want one of the cheapest cars to insure.

You must allow for these extra costs when calculating what you need to borrow to get the car you want and whether you can afford to borrow it.

Take a part-time job to secure student car finance

We’ll assume you have quite a small surplus remaining after allowing for your essential outgoings and that it won't fund a £150 per month payment plus those extra motoring costs we mentioned. It goes without saying you’re going to need to find another source of money - in other words, a job.

If you're studying, it's likely to be a part-time job but that doesn't matter. It’s what you earn that is important to a lender, rather than the number of hours you work. You will need to have worked for some months to have generated enough payslips for a lender to establish your average income and to be confident that the work has become regular.

For the purposes of your application, they’ll only take account of your take-home or net income and not your gross, or pre-tax income. What’s more, responsible lenders will only approve finance that amounts to monthly payments of 25% of your net income or less.

Student car finance: find a guarantor

By this stage, you’re probably thinking that as a young student, the cards are heavily stacked against you being granted a car loan but there is a way you can improve your chances of being accepted.

You can find yourself a guarantor and take advantage of guarantor car finance. A guarantor is someone - probably a close relative such as a parent - who, crucially, has a good credit score and is prepared to back your loan by agreeing to continue payments on your behalf should you be unable to make them.

It’s important to know that they are not topping up your loan but guaranteeing to step in should you be unable to make payments.

Their presence on your loan application may give a lender the confidence it needs to make you that offer. But you and, importantly, your guarantor should remember that if you fail to pay and your guarantor misses payments, the car can be seized. If you still fail to pay, you will both have to go to court and both of your credit ratings will be harmed.

To avoid this, you should put aside sufficient money to cover at least three payments before the start of the contract, so that in the event of a crisis you have time to discuss and make alternative arrangements with your lender.

Student car finance: Car subscriptions

Renault and Nissan are among the few car makers offering car subscriptions. These bundle together all of your motoring costs - including insurance - except fuel. These are typically available only on new cars and are based on PCP deals normally, bundling all your expenses including insurance, servicing, roadside assistance and so on, into the monthly payments. The only extra you have to pay for is the fuel you use.

With so much included, the monthly payments can look expensive but at least you know there are no other charges to consider - apart from fuel - which is useful when budgeting and planning how much money to borrow.