Car finance on benefits: what you need to know before applying

With car finance, lenders want to know you can pay – not where the money came from. Explore your options for getting car finance on benefits.



People on benefits in the UK can buy cars on finance. Most of the time, however, you'll need to work with specialist lenders.

What lenders want to know is that you'll make all your repayments on time and in full. This means having a steady income is more important than where the steady income comes from.

Long-term benefits like the Personal Independence Payment (PIP), Disability Living Allowance (DLA) and Universal Credit (UC) function as a steady and verifiable income.

You'll also need to show that you have enough money left over to make the payments once you've paid your bills. This makes it harder to get car finance if you only get UC.

Before we take a closer look at applying for car finance on benefits, a quick note about terminology. In this guide, "benefits" refers to state welfare benefits for unemployment, illness and retirement rather than workplace benefits.

Are you eligible?

Your eligibility depends on your ability to pay. This means that long-term disability benefits are the most readily accepted.

It's possible to get car finance when you're only on UC, but you'll need to demonstrate you can make the payments.

Mainstream lenders will put a lot of weight on your credit score. Specialist bad credit lenders and brokers, however, will look at your overall affordability more than your credit score.

This means you can get car finance if you're on benefits and have a poor credit score or past county court judgments (CCJs). You just need to work with the right lender or broker.

Things to consider

If you're on benefits, you may doubt your chances of getting a car on finance. However, it's important to remember that, for lenders, your income matters more than where it comes from.

Long-term benefits show steady income, but you'll need to show that you can cover the monthly payments.

Credit history matters if you're applying to a mainstream lender. But if your credit history is poor, you can apply to a specialist lender who will look at your overall affordability.

Bear in mind that a car costs more than its monthly payments. You'll need to pay for insurance, fuel, repairs and more. Factor this in when applying for car finance.

If you can, avoid high-interest deals. Some specialist lenders will offer car finance to people on benefits but charge sky-high APRs. Make sure you compare offers before signing anything.



What kind of car finance can I get on benefits?

There are three main kinds of car finance: a personal loan, hire purchase (HP) and personal contract purchase (PCP).

In most cases, lenders will offer you a hire purchase scheme if you're on benefits. This is where you pay your deposit and then spread the remaining balance (with interest) over fixed monthly payments.

Once you've made the final payment, you own the car. Until then, the car acts as security for the loan, meaning it can be seized and sold if you don't make your payments.

If you're on benefits, PCP agreements are possible but harder to get. They're similar to HP agreements, but with a couple of important differences:

• The monthly payments are cheaper.
• You have the option of making a large final balloon payment to own the car. If you don't want the car, you return it.
  
  

Can I get a car on the Motability Scheme?

The Motability Scheme allows individuals with disabilities and their families to lease a new car, a wheelchair-accessible vehicle (WAV), a scooter or a powered wheelchair.

The scheme works by allowing people on these benefits to exchange their mobility benefits to cover the cost of the car lease.

If you receive the mobility component of certain disability benefits, you can get a car on the Motability Scheme. These benefits are:

• The enhanced rate mobility component of PIP
• The higher rate mobility component of DLA
• The enhanced rate mobility component of the Adult Disability Payment (ADP) in Scotland
• The higher rate mobility component of the Child Disability Payment (CDP) in Scotland
• The Armed Forces Independence Payment (AFIP)
• The War Pensioners' Mobility Supplement (WPMS)
  
  

Applicants to the scheme must have at least 12 months remaining on their allowance.

If you qualify, the car comes with:

• Insurance coverage for up to three named drivers
• Routine servicing and MOT coverage
• Full roadside assistance and breakdown cover
• Replacement tyres and windscreens
  
  

Many cars available on the scheme can also be fitted with custom driving or accessibility adaptations free of charge. These include driving aids, hoists and hand controls.

What do lenders want?

When applying for car finance – whether on benefits or not – it's worth thinking about what lenders want from you.

At the end of the day, they want their money paid back with interest. This means they're likely to prioritise low-risk borrowers who can demonstrate a steady income with enough left over once bills have been paid.

Mainstream lenders will often look at your credit history to decide how risky you are as a borrower. But specialist lenders and brokers will prioritise current affordability rather than your financial past.

This means steady, long-term benefits are likely to be seen as reliable and low-risk by specialist lenders. If you're only on UC, however, you may not have the leftover income to make the payments and your application may be rejected.

How we can help

Here at Zoomo, we provide car finance deals to people in the Newcastle area, regardless of their credit score. Instead, we focus on current affordability.

So, if you're on benefits and can make the payments, why not apply for finance online? It only takes a few moments, and it uses soft-search technology, so it won't affect your credit score.