Student car finance: everything you need to know before applying

Are you a student looking for a car finance deal on a new or used car? Exciting times are ahead – as long as you keep a few key factors in mind.

First, let's get the basics out of the way. To get car finance, you must be at least 18 and hold a valid UK driving licence.

So far, so simple. Things start to get a little knottier when you explore the world of repayments.

The fact is, not all applications for car finance are accepted. And more often than not, rejections are made because the lender decides the applicant isn't a safe pair of hands.

When we say "safe pair of hands", we're not talking about your steering prowess. We're talking about the one thing lenders care about: your ability to pay back the loan.

This guides lenders' decision-making. Can this person make the repayments? If the answer is "yes" or "almost certainly yes", you're good to go.

But if the answer is anywhere on the scale from "heck no" to "hmmm", you're unlikely to get the loan – at least not the first time around.

If you fall into the second category, you can apply again with a guarantor – someone you know who will cover the loan if you can't make the payments.

In a similar vein, you can reapply with a part-time income. This will help you demonstrate to the lender that you can repay their money.

But how do lenders decide whether you can make the repayments? It's a question worth answering before we delve into key considerations.

How do lenders decide if you're a low-risk borrower?

When you apply for car finance, you need to demonstrate that you're financially stable. There are two main aspects to this: your income and your credit history.

If you can demonstrate a steady income that will cover your payments, lenders will beckon you to the dotted line. If things are looking spotty, they're likely to turn you down.

Then there's the question of your credit history. This is found in your credit report and reflects your financial history over the last six years.

Every time you miss a payment, it goes on your credit report. This means that a "poor" credit score – this is industry terminology, not us throwing shade – is likely to be rejected.

The main thing is reliability.

Look at it from the lender's perspective. Who's more reliable – someone with a steady income and a poor credit history or someone with insecure income and a spotless credit history?

These things all come into play when you're applying for car finance. Here are the key things to consider before firing off an application.

What to consider before applying

When you apply for car finance, the lender will assess your eligibility and your budget – so you need to assess these first.

First off, you'll need to provide proof of income. If you're a full-time student, your income is likely to come mostly or entirely from student loans. This means you may need a part-time job or to apply with a guarantor to boost your chances of approval.

Secondly, you'll need to consider your credit history. Having no credit history is just as risky to lenders as having a bad one. So, make sure you register on the electoral roll and build your credit score (more on this later).

Thirdly, consider applying for car finance with a broker. This is a third party that matches you to a panel of appropriate lenders.

If you apply directly for car finance, the application will be classed as a "hard search" and go on your credit score. Too many applications can make you a riskier proposition to lenders.

If, however, you go via a car finance broker, the eligibility checks are "soft searches". These are invisible to lenders on your credit report.

Next, you should factor in the costs of running a vehicle that go beyond the car finance repayments.

These include your deposit, monthly fuel allowances, road tax, maintenance and insurance. With insurance, you should bear in mind that young drivers often face higher premiums.

Last but not least, you should decide what kind of car finance you're applying for. The two main types are hire purchase (HP) and personal contract purchase (PCP).

Both consist of a deposit followed by monthly repayments. The key difference is that an HP agreement ends with you owning the car. With PCP, you either hand the car back or make a large final payment to own the car. Monthly repayments tend to be lower in PCP agreements.

Does part-time income affect car finance?

Yes and no. Lenders want to know you can meet the repayments. This means that consistency and amount of income are more important than the number of hours worked.

You can increase your chances of approval by combining your part-time wages with another source of income or a larger deposit.

How to boost your chances

By this point, you may be worried that you won't be approved. There are, however, some concrete steps you can take to boost your chances.

First, you can put down a larger deposit. This lowers the total amount you need to borrow and reassures the lender that you have the funds to repay them.

Secondly, you can apply with a guarantor. This is someone who co-signs the agreement with you and agrees to make the repayments if you can't.

Finally, you can intentionally build your credit and improve your credit score before applying for finance. You can do this by registering to vote, making sure you pay all your bills on time and keeping any credit card balances low.

Zoomo is a specialist bad-credit car finance broker based in Newcastle upon Tyne. Learn more about student car finance, or jump right in and apply for car finance today.