As a student, car finance can be a great way to buy a car without it costing a ton. Using car finance, you can spread the cost of your vehicle into affordable monthly payments and manage these costs as part of your overall budget.
But how do you apply for car finance as a student? Are there ways to improve your chances of getting approved? And what sort of things should you consider before filling out an application? Before you begin your application process, here are a few things to keep in mind.
Can I afford it?
With standard student expenses, everyday groceries, and other payments that you should keep on top of, you should first decide if you can actually afford to own a car. Even if you think you can afford the monthly payments, you should always consider the other costs related to owning a car (e.g. fuel, maintenance, etc.).
What type of car finance should I choose?
There are two main types of car finance for you to choose from: hire purchase and personal contract purchase. Hire purchase (HP) is a more traditional type of financing, where you have a fixed monthly payment and can own your car at the end.
Personal contract purchase (PCP) is slightly different. It can be a more popular option because it allows you the flexibility to buy, return or part-exchange your vehicle at the end of your agreement. With a personal contract purchase, you can also benefit from lower monthly payments, but you will pay a larger balloon payment if you choose to buy.
If you think that you can afford a car, you should figure out the monthly payment you want to pay. If you struggle to get by every month, spreading your car payments over time can lower your monthly costs. On the other hand, if you are able to pay off the car more quickly, you can shorten the term.
Do I have a good credit score?
You can improve your chances of getting car finance if you have a good credit score. A good credit score can indicate to lenders that you have used credit responsibly and can be trusted with car finance, as you are more likely to repay the money you borrow.
Many students can struggle at this stage as they have not had the time to build up a credit profile. What’s more, this can show you as having low credit, and lenders can turn you away for this reason. Thankfully, there are some quick ways to improve your credit score — take a look at this list.
Register on the election rolls
When you register on the election rolls, you have your details recorded; this can help lenders confirm your identity, and as a result, your credit score can improve.
Apply for a mobile phone contract
By applying and getting a mobile phone contract, you can prove to people who review your application that you have previously made payments regularly — and on time.
Apply for a credit card
When used correctly, a credit card can also improve your credit score and help to improve your chances of getting approved for other loans. It can also benefit you in other ways, as this can help you make big purchases and protect you from fraud.
Will applying affect my credit score?
You can often check your eligibility for car finance online using a soft-search credit check; this will indicate whether you can be approved if you were to do a full finance application. This first step will not affect your credit score, regardless of the outcome. So, if you do not get approved on the initial soft search you can easily walk away.
Just be wary of those that do not offer this option, and only offer a hard credit search. The result of this kind of search will be visible to lenders, so if you are deemed ineligible, lenders will be able to see that you have been turned down.
Can I get car finance with bad credit?
Even if you have low credit, there are ways that you can be approved. You can apply for car finance through a specialist lender, and they will take into account your specific circumstances.
When applying for finance with a bad credit score, some lenders will be more lenient if you show signs of improvement. You can apply for specialist car finance through a bad credit lender and construct a deal that fits your budget and terms.
With so many things to consider, you must take the time to explore your finance options and find a deal that will fit your requirements. Any decent car dealer will speak to you about your options — but keep the above in mind above to improve your chances of getting approved.
