Car finance for young drivers: from under £100 per month

How to get a safe, reliable and modern car without breaking the bank: our guide to car finance for young drivers

BuyaCar team
Jul 26, 2022

Once you've aced the theory test, endured countless hours of driving lessons, and finally passed the practical test, you might think that the hardest part of getting behind the wheel is over. And then you start searching for a car that's safe and reliable, with modern tech and at least some style - all for a price you can afford...

Choosing an appealing but affordable car as a young driver can seem like an impossible task, however car finance can help to bring your ideal vehicle within reach. Finance cuts the cost of a car into a deposit and a series of monthly payments, which can be less than £100 per month in many cases - even if you're after a two-year old, low-mileage car and only have a little cash to put down as a deposit.

Go for PCP finance and you get particularly low monthly payments, though you'll have to make a large optional final payment if you want to buy the car at the end of the contract - which could amount to half of the price of the car at the start of the contract. Alternatively, you could go for Hire Purchase, which has higher monthly payments, but you automatically own the car once you've made the last one, with no big lump sum to pay at the end. Keep reading for more information on both options.

Lenders will check to make sure that monthly payments are affordable for you and if they are, finance could be the quickest way to get a new car on the drive that should serve you well for years to come - all with no need to worry about the endless breakdowns associated with many of the first cars that previous generations of drivers had to put up with. 

Used car finance is usually the cheapest option. If you did want a brand new model, then it may be worth considering a 'fuel and go' offer - better known as Just Add Fuel - that combines the cost of finance, insurance and servicing into one monthly payment. These monthly payments will be higher than for a standard finance scheme, but may work out cheaper overall once you take what you would have spent otherwise on insurance, servicing and road tax into account. And they help with easy budgeting.

If you're young and don't have a regular income, or a history of repaying credit, then your chances of being accepted for finance can be quite low. In this situation, a guarantor car loan can open the door to finance, helping you to get into a better car.

If you have a relative who's willing to vouch for you, and ultimately make the payments if you are unable to do so, then lenders are generally more willing to offer finance - provided your guarantor has a reasonable credit score - and potentially reduce the interest rate they charge you. Scroll down for more information on guarantor car finance

Guarantor car finance

Young drivers who have never borrowed money and are just starting a career can struggle to find a lender willing to offer them car finance. This can be a problem if you can afford the monthly payments and need a car to travel to your first job.

A guarantor can solve this Catch-22 situation, however. This is someone who has a good credit score and will vouch for you, enabling you to get finance - often at a low rate. They don’t just put in a good word, though. If you fail to make your payments, then the guarantor must step in and make them on your behalf.

Guarantors need to be over the age of 21, and have a strong credit history. It helps if they are homeowners. They can’t be financially linked to you - which would rule out a partner - but they can be a parent: the most common type of guarantor.

In most cases, once the loan is made, the guarantor has no further involvement with the process. You make the monthly payments until the debt is cleared, so it's important to ensure that your income can cover the payments comfortably. If your situation changes and you can't make the repayments, then the guarantor becomes responsible for them. 

If your guarantor then fails to make payments that you miss, then both of you can be taken to court and it will affect both of your credit scores. So make sure you've done your sums to know what you can afford before signing on the dotted line.

PCP and HP finance for young drivers

Whether you use a guarantor or not, you'll often have the option of the two most popular types of car finance. These are Hire Purchase and PCP finance. Both involve a deposit - though this can often be very small or even zero in many cases - followed by a series of monthly payments, however there are significant differences between them.

Hire Purchase (HP) contracts divide the cost of the car into a deposit and a series of monthly payments. Once you've made the final instalment, the car is yours and you are free to keep it or sell it with nothing further to pay, as you are the legal owner at this stage.

Personal Contract Purchase (PCP) finance is more flexible. Your monthly payments are lower because they don't cover the full cost of the car - they only cover the value the car is expected to lose over the duration of the contract - though as a result, you don't automatically own the car when the contract ends, as you do with HP.

At the end, you have three choices: hand the car back and walk away with nothing to pay (provided it's in good condition and you haven't gone over the pre-agreed mileage limit); trade the car in for another model on a new finance deal, putting any equity - should the car be worth more than the remaining debt - towards the deposit on your next one; or keep the car, either by making the optional final payment in one lump sum, or refinancing this to make it more affordable.

Just Add Fuel deals for young drivers

Available for new car drivers aged 18 and over, a Just Add Fuel finance agreement makes it easier to budget for a new car, by including the finance, insurance, servicing, tax and breakdown cover in a single monthly payment. However, that monthly payment is high, as it includes these extras and young drivers are still likely to need a guarantor for this.

Most Just Add Fuel-type deals are a form of PCP finance so you'll normally pay a deposit, make fixed monthly payments for three years or so and then have the option of returning the car or buying it for the pre-agreed optional final payment.

And if the car is worth more than the optional final payment at the end of the contract, you can put any extra - the equity - towards the deposit on a new contract, reducing your future monthly payments. Do bear in mind, however, that as Just Add Fuel offers are only available for new cars, they are typically more expensive than financing and running a used vehicle.

More details on Just Add fuel deals

Car finance for 17-year-olds

It’s difficult to get car finance at the age of 17, and many lenders will not even consider it. Using any savings you may have or getting an informal loan from your parents to buy a less expensive car are the most common ways of buying a car at this age.

If you can, waiting until you're 18 should give you a much wider range of finance options that could help you get into a more appealing car - and potentially cost you less, too.

Car finance for 18-year-olds

From the age of 18, you can be eligible for car finance, either with the support of a parent or friend as a guarantor, or - if your credit score is strong enough - on your own. As well as a standalone finance agreement, you also have the option of purchasing a brand new car with a Just Add Fuel deal from Peugeot, Citroen and DS. You're likely to be restricted to smaller cars, but they still include the appealing Citroen C1 and the Peugeot 2008 crossover. 

Guarantor car finance for 18-year-olds

This is a common way to get finance, especially if you’re living with your parents who are prepared to act as guarantors. You should be confident that you can afford the payments through the entire course of the agreement, which could include time away at university, when you may have no money coming in, if you're not working.

If you’re unable to pay, then your guarantor will be liable to make up the difference, so do your sums to make sure you're confident you can afford a car before signing on the dotted line. And remember: if neither of you pay, the car can be seized as part-payment of the total amount that you owe.

Standard car finance for 18-year-olds

If you are employed, with a regular income, then it may be possible to obtain car finance without the need for a guarantor at 18. Ensuring that you are on the electoral roll (meaning you are registered to vote) will help to boost your chances, but it’s difficult to build up any credit history and improve your credit score before you turn 18.

Cars in low insurance groups

Car finance for 19-year-olds and 20-year-olds

If you’re 19 or 20, you may still need a guarantor to secure finance. You can improve your chances of being approved on your own by building up a credit history: using a credit card and ensuring that you pay the balance every month is one way. This helps to reassure lenders that you can be trusted to make your payments on time.

Having a job with a regular income gives lenders the confidence that you have the means to repay a loan, while being on the electoral roll places you at a permanent address, making you more creditworthy.

Combined, these factors make you more likely to be approved for finance without a guarantor, but you're likely to find that you can get a better interest rate with one.

Car finance for 21-year-olds and over

Once you reach the age of 21, lenders are more willing to offer finance, which reduces the need to have a guarantor and increases your access to offers, including those for drivers with poorer credit ratings.

The advice on building your credit history above still applies, though, as it can help you to secure a lower interest rate.

All used car deals


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