Passing your driving test before you go to university can be incredibly liberating – you’ve got so much more freedom with a car! But attending uni can also be an expensive part of your life, so purchasing a vehicle outright may not be an option for everyone. The question is, can students take out car finance?
The simple answer is that students can get a vehicle loan, though you’d still need to meet the same criteria as everyone else! The main three things a lender will look at will be your income, your credit history, and whether you’re making a sole or joint application. We’ve explored these in more detail below:
1. Your Income
To be eligible for vehicle finance, you will need to be in receipt of a regular income. Most lenders will ask that you’re earning a minimum of £1,000 per month. It’s important to note that this can’t be from your student loan, as it’s rarely a good idea to repay credit with credit. You will therefore have to at least have part time employment alongside your studies.
The reason lenders ask that you be in receipt of a monthly income of £1,000 or above is that if you were earning any less than this, you may struggle to keep to the agreed repayments. And because car finance is a type of secured loan, which means that the value of the loan is secured against the vehicle, if you were to default on the loan, your car could be repossessed. It’s essential that you ensure a loan is affordable before applying.
2. Your Credit History
Your credit history can be just as important as your income when it comes to vehicle finance. This history is made up of all the credit you have taken out in the last six years, as well as negative marks on your credit file, such as CCJs, IVAs, and bankruptcies. Generally, the lender will look at both your credit file and your credit score.
This score, or rating, will be a number calculated from your financial history, and can give lenders a good idea of how likely you are to keep to a credit agreement. Usually, the higher the score, the better the chances of you getting approved for a loan.
You can check your credit score for free using websites such as Credit Karma and Experian. Once you’ve found out how high your credit rating is, you can then see if you can do anything to improve it. Examples of this include:
Register on the Electoral Roll
While you may not be living in your accommodation for too long, proving where you live by registering on the electoral roll can help verify information on your credit file. This can actually help boost your credit score.
It’s also worth noting that lenders may check your details against the electoral roll, to protect themselves against fraud. So if your information doesn’t match up, because you’re still registered elsewhere, this could cause a slight issue.
Take Out Credit
This may sound counterintuitive, but sometimes you need to take out credit in order to borrow money. Young people in particular don’t have much of a credit history, so lenders are unable to determine how they manage their money. They therefore need to show that they can repay credit.
As a student, one of the simplest ways to take out credit is to get a student credit card with a low credit limit. You could use this card to make small purchases, and then make sure you settle the balance each month. This demonstrates that you are able to handle your finances, and may mean loan providers are more likely to lend to you in future.
Get a Mobile Phone Contract
Although most students will already have a mobile phone, the contract won’t always be in their name. Much like taking out credit, proving that you can repay a regular bill like a phone contract can show lenders that you’d be able to keep to the loan repayments.
3. Sole or Joint Application
If you’re a student making a vehicle finance application on your own, you may be interested to know that making a joint, or guarantor, application could improve your chances of approval. A guarantor loan is where someone, usually a family member, agrees to act as your guarantor should you be unable to make the due payments. The loan is not in their name, but they act as a safety net, in case something goes wrong.
The finance application will be linked to both people though, so if your guarantor has a good credit rating, this may increase the likelihood of loan approval. Acting as a guarantor is a big responsibility, however, and should not be entered into without serious consideration. Failure to make the monthly payments could result in the credit file of both parties being negatively impacted.
You should also consider the fact that car finance is a type of secured loan, which means they are usually more accessible than unsecured loans. You may not need a guarantor to get a vehicle loan, as there is already less risk involved for the lender. Of course this does mean that should the loan be defaulted on, your vehicle could be repossessed.
How to Apply for Student Car Finance
If you’re looking to apply for a car loan, Vehicle Finance Today can help! As long as you meet the basic criteria below, our lenders should consider your application:
- Be aged 21 or above
- Have an income of at least £1,000 per month
- Live in the UK
- Have a full or provisional driving licence
Our online application shouldn’t take more than a few minutes to complete, and you could be driving away in your new set of wheels in no time!