It’s one of those ‘rites of passage’ for great numbers of young people; being able to get behind the wheel of their own car, instead of having to keep on depending on lifts from friends and relatives, or even public transport.
There is, though, a barrier that a lot of young people come up against when trying to make this happen: a lack of money to buy a car. That, in turn, brings us onto the subject of car finance.
Introducing the world of car finance
The term ‘car finance’ refers to a form of finance that allows someone to purchase or get behind the wheel of a car without the need to fork out the full amount of cash up-front that is required to immediately buy the vehicle outright.
Typically, when a driver agrees to a car finance deal, this means they will need to pay a certain fixed amount each month, over a loan term of what might be several years, in order to cover the costs of the given vehicle.
There are different types of car finance out there, which naturally bring slightly different ‘pros’ and ‘cons’ for young motorists. These include the likes of hire purchase (HP) and personal contract purchase (PCP) deals.
Typically, completing all the main repayments on a HP agreement will mean the driver automatically becomes the owner of the vehicle. With a PCP deal, meanwhile, even once the principal monthly repayments have been made on the agreement, the driver will not automatically become the car’s owner; instead, in order to acquire the car, the driver will need to make a final ‘balloon’ payment.
That might initially seem to be a disadvantage of a PCP agreement, although of course, much depends on the motorist’s own priorities and needs. Many drivers choose PCP rather than HP finance because of the flexibility it can give them to hand the car back at the end of their finance deal, and commit to a new car on a new finance plan.
So, with no further ado, what are some of the other benefits that car finance can bring to younger drivers?
- It allows them to afford a car in the first place. As we touched on above, younger motorists – whether those who might still be studying at college or university, or perhaps those taking on their first job – are not exactly known for being flush with cash. The right car finance deal could therefore be instrumental in making car ownership a financially realistic goal for them.
- It enables them to build up their credit history. It is well-known that having a bad credit score can hamper someone’s chances of being approved for car finance or similar loans. However, as the consumer credit reporting company Experian sets out, a person can also have a low credit score as a consequence of having never had credit at all, as can clearly be the case for a lot of young people. Securing and paying off a car finance deal over time could be one way for them to help build up that credit score.
- It could be obtainable even if they only have a provisional licence. Yes, even motorists that haven’t actually passed their driving test could still get approved for car finance. It might be tougher to do so than if you had passed your test, given that lenders are likely to see someone who is only on a provisional licence – and who might also be in less-than-stable financial circumstances, as is frequently the case for younger drivers – as a greater risk. But there are brokers out there – such as LMC – that specifically draw attention to the fact that they help to arrange car finance for motorists with provisional licences.
Your dream of car finance – and your own car – could be more attainable than you think
If you are a younger driver and you would like to get behind the wheel of your own car, applying for car finance could turn out to be advantageous for you, even if you should also do careful research into your options and consider your particular needs before committing to a given finance plan.
Young drivers need to be just as responsible as all other drivers when it comes to ensuring they will realistically be able to afford whatever loan they take out. So, take your time when comparing lenders and brokers, and don’t forget to carefully consider which specific car model will also be best suited to your circumstances and requirements. Good luck!
