Car finance with a provisional licence

Car finance for drivers on a provisional licence

Financing a car can be tricky if you don’t have a full driving licence, but there are several options available for you.

You might not know it until you apply, but getting finance on a car if you’re only a provisional licence holder can be surprisingly tricky. Many lenders will flat-out refuse to consider you, and those that do will likely impose stricter borrowing limits, higher monthly repayments with more interest and even put limits on the kind of car you can get.

But it’s not impossible to finance a car before you’ve passed your test. Your chances of acceptance can vary depending on your circumstances and on what steps you’ve taken to make yourself more attractive to lenders. Here’s what you need to know, with a run down of your options and what you can do to maximise your chances of being accepted for a deal.

Your range of potential lenders will be narrower

Obtaining car finance is an exercise in risk perception. Lenders want to lend you money so that they can make money from the interest, but they don’t want to risk losing it. That’s why they perform a range of checks before agreeing to any kind of deal.

Being a provisional licence holder means you’re perceived as a higher risk than someone who holds a full licence – you lack real-world driving experience, and there’s a higher chance that you could damage the car and leave yourself financially vulnerable.

That means that there are some lenders who simply won’t lend to provisional licence holders. Of those that will, the chances are that the APR charges – the interest and any other finance charges – will be higher than usual, meaning your monthly payments will be higher, too.

There can be further restrictions as well. The amount you can borrow is often limited, usually to around £10,000 to £12,000 but sometimes lower. Lenders might also stipulate what kind of car you can buy with their money, restricting you to smaller cars with low insurance costs, although these are usually the kind of cars that new drivers would buy anyway.

You may face additional problems if you’ve had a provisional licence for some time – many lenders won’t accept provisional licences that are more than five years old.

You could also have to come up with a substantial deposit. Normally you can get away with a relatively small deposit for car finance (or even none at all), but most lenders will ask for around 10% of the total amount for borrowers on a provisional licence.

Age is important

Most provisional licence holders are young. That means it isn't necessarily their licence status that prevents them from getting finance approval. Rather, it’s that young people usually have less evidence of stable employment and regular income, and often have a short or sometimes patchy credit record.

If you’re an older provisional licence holder you’ll likely find things a bit easier, as you’re more likely to have a better credit rating and be seen by lenders as less of a financial risk. However, you could still face restrictions on how much you could borrow and what type of car you could be approved for.

Maximise your chances of car finance approval

There are several ways that you can improve your chances of being approved for finance on a car. The first is to ensure that your credit score is as good as possible. Make sure you’re registered on the UK electoral roll to confirm to lenders that you live where you say you live.  You can register at your local Electoral Register Office if you live in England, Scotland or Wales, or if you’re in Northern Ireland then at the Electoral Office for Northern Ireland.

Check your credit history for mistakes, as they can affect your rating. Websites like ClearScore, Credit Karma, Moneysupermarket's Credit Monitor, or Money Saving Expert's Credit Club will let you check it for free, or you can go directly to the three credit reference agencies – Experian, Equifax and Transunion. Alert them if you spot any mistakes and they can confirm and correct them.

If you don’t already, use some kind of credit such as a phone contract or credit card on a regular basis, but make sure you pay the balance off on time every month. This will demonstrate your financial responsibility. But avoid making multiple formal credit applications in a short period of time, as lenders could perceive that you’re financially desperate.

Guarantor car finance

If you’re still struggling to get car finance as a provisional licence holder, you could consider employing a guarantor. This is someone – usually a relative or parent – with a good credit score and demonstrable stable income that will guarantee to pay what you owe if you can’t. That will reassure lenders that they’ll get their money back. However, the guarantor must understand that they will be responsible for your debt if you can’t keep up your repayments.

HP over PCP

When looking at different types of car finance, focus on hire purchase (HP) rather than Personal Contract Purchase (PCP). This is because HP deals are based on the whole value of a car, whereas PCP deals only cover the amount of value the car is expected to lose during the contract length.

PCP deals require you to pay a final amount at the end of the contract to own the car, and are seen as higher risk by lenders than an equivalent HP deal. That means you’re more likely to be successful as a higher-risk proposition if you apply for HP car finance.