Car Finance for Young People

Why This Guide Matters

Getting your first car is a milestone—one that often comes with questions about how to pay for it. For young people, the world of car finance can appear complex, full of new terminology and small print. Whether you’re just starting work, studying, or building your credit history, understanding your options is crucial. Making the right finance choice now can set you up for future success, while the wrong one can leave you with unexpected costs and commitments. This guide is designed to demystify car finance for young people in the UK, offering clarity so you can move forward with confidence.

The Basics Explained

Car finance simply means borrowing money to buy a car, then repaying it over a set period. For young people, the most common options are:

• Personal Contract Purchase (PCP): You pay an upfront deposit, make monthly payments, and have the option to buy the car at the end for a final lump sum.

• Hire Purchase (HP): You pay a deposit, then monthly payments. Once the final payment is made, you own the car.

• Personal Loan: Borrow money from a bank or lender to buy the car outright, then repay the loan over an agreed term.

Each method has its features, pros, and requirements. For example, PCP usually offers lower monthly payments, while HP makes ownership more straightforward. Your credit history, income, and whether you have a guarantor will influence which options are available and at what rates.

How It Affects You

The way you finance your first car can affect more than just your monthly budget. Here’s what to consider:

• Credit Score: Lenders will check your credit record. A good score can mean more favourable interest rates, but entry-level options are still available for those with limited history.

• Monthly Commitment: Calculate what you can comfortably afford, factoring in insurance, maintenance, and running costs. Overcommitting can strain your finances.

• Ownership Timing: With PCP and HP, you won’t own the car until the agreement ends. With a personal loan, the car is yours from day one.

• Early Repayment: Some agreements charge fees if you want to pay off your finance early. Always check the terms before signing.

The right finance deal should support your independence without undermining your financial stability. Take time to understand how repayments will fit into your life now and in the coming years.

Our Approach

At Kandoo, we believe that car finance should be accessible, transparent, and tailored to each individual. Here’s how we approach car finance for young people:

1. Listening First: We start by understanding your needs, your financial position, and your long-term goals. This helps us recommend products that make sense for you—not just for today, but for tomorrow too.

2. Explaining in Plain English: Finance terms can be confusing. We break down the jargon—APR, balloon payments, credit checks—into language you can understand. Our aim is to empower you with knowledge so you can make informed decisions.

3. Wide Panel of Lenders: We work with a range of lenders, meaning we can often find solutions even if your credit history is limited or you’re new to finance. We’ll explain the differences between deals so you can weigh up the true cost and benefit.

4. No Pressure, No Surprises: You’ll never be rushed or pressured into a decision. We ensure all fees, charges, and obligations are clear from the outset.

5. Ongoing Support: Your journey doesn’t end when you drive away. We’re here for questions, support, and advice throughout your agreement.

Before You Decide

Before signing any finance agreement, take these steps:

1. Check Your Credit File: You can get a free report from providers like Experian, Equifax, or TransUnion. Knowing your score helps you understand what deals may be available.

2. Budget Realistically: Factor in all car-related costs, not just the monthly payment. Insurance for young drivers is often higher than expected.

3. Compare Offers: Don’t accept the first deal you’re offered. Shop around, and ask questions about anything you’re unsure of.

4. Read the Fine Print: Look for clauses on excess mileage, early repayment, and what happens if you miss a payment.

5. Seek Advice: If in doubt, talk to a finance adviser or someone you trust who has experience with car finance.

What’s Real, What’s Hype

It’s easy to get swept up by offers like “zero deposit” or “guaranteed acceptance.” Here’s what to watch for:

• No Deposit Deals: These are genuine, but often come with higher interest rates. The total amount payable may be more.

• Guaranteed Acceptance: Be wary—these often have much higher interest rates and stricter terms. Not all applicants will qualify for the best deals.

• 0% Finance: Usually only available on new cars, often with shorter repayment terms or higher upfront costs.

Always separate marketing hype from reality. Focus on the total cost, not just the monthly figure.

Pros & Cons

Other Options to Consider

Car finance isn’t your only route. Here are some alternatives:

1. Saving Up: If you can delay your purchase, consider saving for a larger deposit—or the whole car. This reduces or removes the need for borrowing and interest.

2. Bank of Mum and Dad: Family support can sometimes cover part or all of the cost, reducing your dependence on lenders. If you go this route, agree terms in writing.

3. Leasing: Instead of buying, lease agreements mean you pay to use the car for a set period. This can be cost-effective, but you won’t own the car at the end.

4. Shared Ownership: Some schemes let you share the use and cost of a car with others—ideal for students or city dwellers.

5. Public Transport and Car Clubs: For some, especially in cities, the cost and hassle of car finance may not be worth it. Weigh up whether you need a car full time.

FAQs

Q: Can I get car finance if I’m under 21? A: Yes, but your options may be more limited, especially if you have little or no credit history. Some lenders may require a guarantor.

Q: Will applying for car finance affect my credit score? A: Lenders carry out a credit check as part of your application. Too many applications in a short time can lower your score. Use eligibility checkers where possible to avoid unnecessary hard searches.

Q: Do I need a job to get car finance? A: Lenders will want to see that you can afford repayments, so a regular income is important. Some may accept students with a guarantor.

Q: What’s a guarantor? A: A guarantor is someone (often a parent or close relative) who agrees to cover your payments if you can’t. This can improve your chances of approval.

Q: Can I pay off my car finance early? A: Usually, yes, but check for early settlement fees. Ask the lender for a settlement figure before making extra payments.

Q: What happens if I miss a payment? A: Missing payments can damage your credit score and may lead to repossession of the car. Talk to your lender immediately if you’re struggling to pay.

Next Steps

Take your time. Review your budget, check your credit, and compare finance options. Don’t be afraid to seek advice or ask questions. Kandoo is here to help you navigate your first car finance journey with expertise and support. Ready to explore your options? Reach out today for a tailored, no-obligation consultation.