Advice
Car Finance for Young Drivers
If your a young driver or parent trying to understand car finance, let us help you understand everything you need to know.
Words by: Eleanor Greaves
Published on 26 February 2026 | 0 min read
Whether you’ve just passed your test or it’s time for an upgrade, buying a new car can be very expensive so a finance deal might help you spread the cost over a period of time.
Securing car finance might seem like a very daunting task, especially if you are new to driving. In this guide, we’ll break down everything you need to know and useful tips for first-time car financing, including: • How your credit score, income and affordability affect finance approvals • The different types of finance available, including HP and PCP • How deposits, interest rates and APRs can impact costs • How a guarantor can support your application • Extra costs to budget for, such as insurance, tax and maintenance • The steps, documents and requirements needed to apply for car finance
Securing car finance might seem like a very daunting task, especially if you are new to driving. In this guide, we’ll break down everything you need to know and useful tips for first-time car financing, including: • How your credit score, income and affordability affect finance approvals • The different types of finance available, including HP and PCP • How deposits, interest rates and APRs can impact costs • How a guarantor can support your application • Extra costs to budget for, such as insurance, tax and maintenance • The steps, documents and requirements needed to apply for car finance
How does credit score affect car finance?
One of the biggest challenges for young drivers is proving creditworthiness.
Creditworthiness is a lender's assessment of how likely you are to repay debts on time, which helps them decide whether to approve you for credit. To assess this, lenders look at your credit history, which is detailed record of your past borrowing and repayment behaviour. This information is used to calculate your credit score which is a 3-digit number that provides a quick snapshot of your financial reliability. As a young person, you may have no or limited credit history, which can make securing car finance more difficult. This is because lenders have less information to assess the risk of lending to you. However, a limited credit file doesn’t stop you from getting car finance. Initially, you may be offered higher interest rates, this is normal and you can improve this as you build your credit history provided you make your payments in full and on time. There are a few things which you can do to improve your credit score such as: • Register to vote • Keep your credit utilisation low • Report any mistakes on your credit report • Pay for bills on time You can check your credit score on websites such as Experian or ClearScore.
Creditworthiness is a lender's assessment of how likely you are to repay debts on time, which helps them decide whether to approve you for credit. To assess this, lenders look at your credit history, which is detailed record of your past borrowing and repayment behaviour. This information is used to calculate your credit score which is a 3-digit number that provides a quick snapshot of your financial reliability. As a young person, you may have no or limited credit history, which can make securing car finance more difficult. This is because lenders have less information to assess the risk of lending to you. However, a limited credit file doesn’t stop you from getting car finance. Initially, you may be offered higher interest rates, this is normal and you can improve this as you build your credit history provided you make your payments in full and on time. There are a few things which you can do to improve your credit score such as: • Register to vote • Keep your credit utilisation low • Report any mistakes on your credit report • Pay for bills on time You can check your credit score on websites such as Experian or ClearScore.
Income and affordability
Lenders assess your income and regular outgoings to make sure you can afford the monthly repayments.
When applying for car finance a lender will look at your income, any contractual payments such as loans and your regular spendings to ensure you are in a position to make monthly repayments on time. To check this, lenders are likely to request payslips or bank statements. A steady and reliable income indicates financial stability, increasing your chances of securing finance. Lenders look at affordability closely to determine whether you can cover the loan repayments with your current finances. You can improve your affordability by paying off existing loans, reducing credit card balances, reviewing your utility bills and cutting back on unnecessary spending.
When applying for car finance a lender will look at your income, any contractual payments such as loans and your regular spendings to ensure you are in a position to make monthly repayments on time. To check this, lenders are likely to request payslips or bank statements. A steady and reliable income indicates financial stability, increasing your chances of securing finance. Lenders look at affordability closely to determine whether you can cover the loan repayments with your current finances. You can improve your affordability by paying off existing loans, reducing credit card balances, reviewing your utility bills and cutting back on unnecessary spending.
Types of car finance
When applying for car finance, there are two popular options: Hire Purchase (HP) and Personal Contract Purchase (PCP).
Hire Purchase lets you pay for a car in fixed monthly instalments over an agreed term, usually 2-4 years. Once all payments are made (including a small option to purchase administration fee) you will own the car. With Personal Contract Purchase, you pay a deposit and fixed monthly instalments based on the car’s expected depreciation. At the end of the agreement, you can return the car, part-exchange it for a newer model or buy the car with a one off ‘balloon payment.’ Learn more about Hire Purchase and Personal Contract Purchase here.
Hire Purchase lets you pay for a car in fixed monthly instalments over an agreed term, usually 2-4 years. Once all payments are made (including a small option to purchase administration fee) you will own the car. With Personal Contract Purchase, you pay a deposit and fixed monthly instalments based on the car’s expected depreciation. At the end of the agreement, you can return the car, part-exchange it for a newer model or buy the car with a one off ‘balloon payment.’ Learn more about Hire Purchase and Personal Contract Purchase here.
Deposit considerations
Most lenders require a deposit towards the car. The amount of deposit required varies, with some lenders offering no-deposit finance options.
A higher deposit amount could lower your monthly payments and could also make it easier to get approved as the total amount to finance will be lower. People typically tend to pay between 10-20% of the cars total value. Larger deposits are not typically recommended if you intend to take out a PCP agreement, as it means you are investing a high amount of savings into a car that you may not keep.
A higher deposit amount could lower your monthly payments and could also make it easier to get approved as the total amount to finance will be lower. People typically tend to pay between 10-20% of the cars total value. Larger deposits are not typically recommended if you intend to take out a PCP agreement, as it means you are investing a high amount of savings into a car that you may not keep.
Interest and APR
Interest rates and APR represent the total cost of borrowing.
Interest rates are usually higher for young drivers as they are often perceived as higher risk by lenders. This is due to limited or no credit history, lower or unstable income and the fact that they are at a higher risk of being involved in a road accident due to limited experience. To protect themselves against uncertainty, lenders often charge higher rates to offset that risk. It’s worth looking at multiple options and deals to secure the best rate.
Interest rates are usually higher for young drivers as they are often perceived as higher risk by lenders. This is due to limited or no credit history, lower or unstable income and the fact that they are at a higher risk of being involved in a road accident due to limited experience. To protect themselves against uncertainty, lenders often charge higher rates to offset that risk. It’s worth looking at multiple options and deals to secure the best rate.
Guarantor
A guarantor is someone you know and trust who co-signs your finance agreement and agrees to pay for your car finance in the event you aren’t able to. Having a guarantor may make it easier to get approved when applying for car finance.
Having a guarantor support your finance application can improve your chances of getting approved as having a trusted family member or guardian with a stronger credit history gives the lender extra security that your loan will be repaid. This is especially helpful if you have no credit history, work part-time or are unable to apply for car finance. As car finance is a legal contract, it’s important that you and your guarantor are fully informed of the conditions, implications and legal obligations of the agreement. Your guarantor will need to provide personal financial information and will be accountable for the debt if you are unable to make repayments. Any missed payments will impact both parties credit score.
Having a guarantor support your finance application can improve your chances of getting approved as having a trusted family member or guardian with a stronger credit history gives the lender extra security that your loan will be repaid. This is especially helpful if you have no credit history, work part-time or are unable to apply for car finance. As car finance is a legal contract, it’s important that you and your guarantor are fully informed of the conditions, implications and legal obligations of the agreement. Your guarantor will need to provide personal financial information and will be accountable for the debt if you are unable to make repayments. Any missed payments will impact both parties credit score.
Best cars for young drivers applying for finance
When choosing you first car you need to look for something affordable, easy to run, and reliable. Using car finance could mean you can buy a newer, safer and more reliable car that would otherwise have been out of your price range.
There are lots of options available when choosing your first car but to make it easier we have picked out our best first cars for new drivers.
There are lots of options available when choosing your first car but to make it easier we have picked out our best first cars for new drivers.
Steps to take when applying for car finance
1. Pass your driving test
2. Assess your budget and affordability 3. Choose a suitable car 4. Compare finance options and deals 5. Check your eligibility 6. Apply for finance with a dealer or finance broker 7. Finalise deal and sign the agreement 8. Collect car
2. Assess your budget and affordability 3. Choose a suitable car 4. Compare finance options and deals 5. Check your eligibility 6. Apply for finance with a dealer or finance broker 7. Finalise deal and sign the agreement 8. Collect car
Documents required
Lenders may require the following documents to verify your identity and financial details:
• Valid UK licence • Proof of address (utility bill or bank statement) • Proof of income (payslip or bank statement)
• Valid UK licence • Proof of address (utility bill or bank statement) • Proof of income (payslip or bank statement)
Additional costs to consider
Expenses such as insurance, tax and maintenance costs can significantly affect the true cost of owning a car.
When applying for car finance its worth considering the following: • Insurance is often the largest ongoing expense for young drivers. It’s worth getting insurance quotes before committing to a specific car as different models will vary. Cars in lower insurance groups (1-10) are cheaper to insure. • Your monthly budget and whether you can afford payments alongside other expenses. • Fuel costs vary between car models and individual driving habits. Consider fuel costs when choosing the engine size and drivetrain of your vehicle. • Maintenance and repairs are an important factor when budgeting. Annual MOT, regular services, general repairs and potential breakdowns can all add to the overall cost of running a car. If you have bought a car on finance rather than outright in cash, there may be stipulations on where your car is serviced or repaired. • Road tax varies between vehicles; the amount you pay is measured by the amount of CO2 the car produces. • Finance fees such as early settlement fee, admin fees, excess milage charges and maintenance requirements are also important costs. • Check the total amount repayable, not just the monthly payment. Whilst a longer agreement might have lower monthly payments you might end up paying more overall due to interest.
When applying for car finance its worth considering the following: • Insurance is often the largest ongoing expense for young drivers. It’s worth getting insurance quotes before committing to a specific car as different models will vary. Cars in lower insurance groups (1-10) are cheaper to insure. • Your monthly budget and whether you can afford payments alongside other expenses. • Fuel costs vary between car models and individual driving habits. Consider fuel costs when choosing the engine size and drivetrain of your vehicle. • Maintenance and repairs are an important factor when budgeting. Annual MOT, regular services, general repairs and potential breakdowns can all add to the overall cost of running a car. If you have bought a car on finance rather than outright in cash, there may be stipulations on where your car is serviced or repaired. • Road tax varies between vehicles; the amount you pay is measured by the amount of CO2 the car produces. • Finance fees such as early settlement fee, admin fees, excess milage charges and maintenance requirements are also important costs. • Check the total amount repayable, not just the monthly payment. Whilst a longer agreement might have lower monthly payments you might end up paying more overall due to interest.
Finance calculator
For an idea of what your monthly payments could look like, take a look at our car finance calculator.
Deciding how to pay for your car
It might be worth considering paying cash for your vehicle, if you have the available funds.
Whilst finance is a flexible option which allows you to spread the cost of the car over manageable monthly payments, there are some benefits to paying cash such as: • Avoid paying high interest rates • No restrictions, for example on milage or servicing, as you own the vehicle • Paying cash is more time efficient, no need to wait on approvals • Less of a commitment if your finances change • Flexibility to sell or part-exchange the vehicle at any time without additional payments • Fewer complications if the vehicle is damaged Whether or not you should get a car on finance or pay in cash will depend on your individual circumstances, such as your budget, driving experience, and personal preferences. It's important to do your research and compare different options before proceeding.
Whilst finance is a flexible option which allows you to spread the cost of the car over manageable monthly payments, there are some benefits to paying cash such as: • Avoid paying high interest rates • No restrictions, for example on milage or servicing, as you own the vehicle • Paying cash is more time efficient, no need to wait on approvals • Less of a commitment if your finances change • Flexibility to sell or part-exchange the vehicle at any time without additional payments • Fewer complications if the vehicle is damaged Whether or not you should get a car on finance or pay in cash will depend on your individual circumstances, such as your budget, driving experience, and personal preferences. It's important to do your research and compare different options before proceeding.
FAQs
Where can I get a cheap car finance?
Autotrader has thousands of affordable vehicles for sale. We act as a credit broker which means we don’t offer finance ourselves, but we make it easy for you to apply directly with the retailer.
Once you have found a vehicle which suits your needs, you can use the calculator on our adverts to quickly get an estimate of how much your monthly repayments may be from that retailer’s lender panel.
Once you have found a vehicle which suits your needs, you can use the calculator on our adverts to quickly get an estimate of how much your monthly repayments may be from that retailer’s lender panel.
Can students get car finance?
Yes, students can apply for car finance, but approval depends on factors like income and credit history. Whilst some students may have a source of income, they might not meet lenders income criteria and be viewed as a risky prospect. Something to note is that you cannot use your student loan income to apply for finance.
What is the youngest age you can finance a car?
Whilst you can legally drive at 17 years old, in order to secure car finance, you need to be at least 18 years old as this is the minimum legal age for signing credit agreements in the UK.
Can I get car finance with a provisional license?
If you are still in the process of learning to drive and hold a provisional licence you can still apply for vehicle finance, however, your options may be limited.
Will applying impact my credit score?
A soft search will not impact your credit score, however, a full application shows on your credit file.
What is a commission disclosure?
A commission disclosure is provided by car dealers or brokers to inform you about any commission they’ll receive for arranging finance on your behalf.