Can I Get Car Finance If I Am Receiving Benefits?

Many car buyers on benefits fear that their status will hinder them from buying a new car. This shouldn’t be the case because, just like anyone else who wants to have their own ride, you want to enjoy the freedom and convenience of driving a vehicle that's all yours. No matter your circumstance, you shouldn't be discouraged from getting car financing. With that in mind, is car finance on benefits available?

Absolutely. There’s no reason why you shouldn’t get deals even if you’re on benefits. But before you apply, there are some points that are worth knowing so you're well prepared. 

Understanding Car Finance

Understanding car finance is pretty straightforward. It's a way to spread the cost of a new or used car. Instead of paying the full amount upfront, you pay monthly instalments. There are a few types to choose from, like Personal Contract Purchase (PCP), Hire Purchase (HP) and car leasing.

Receiving Benefits in the UK

Many people in the UK receive benefits like Universal Credit, Personal Independence Payment (PIP) or Employment and Support Allowance (ESA). Whilst they're invaluable in supporting day-to-day living, it's normal to wonder how they might impact your eligibility for car finance.

Eligibility for Car Finance While on Benefits

Now, lenders take several factors into account when assessing your prepared car finance application. These include your credit score, affordability and the stability of your income. Being on benefits doesn't automatically rule you out, but it might affect these factors. Here's the deal: benefits are a stable form of income, so it could work out for you.

Options for Car Finance Whilst on Benefits

Some finance providers do offer car finance to those on benefits. It's all about searching for the right lender that understands your circumstances. Also, you might want to look into schemes if you receive certain mobility allowances, as they can help you lease a car, scooter or powered wheelchair using your benefits. But be mindful, not all benefits are considered equal by lenders, so it's crucial to check the specifics with potential finance providers.

Tips for Applying for Car Finance on Benefits

Be Realistic With Your Budget

What you have to understand first is that it's important to be realistic about your expectations. For example, how much can you afford to borrow from a car finance company? 

You have to be honest with yourself when you’re assessing the numbers when it comes to your income and how much you can spare every month to pay for the monthly repayments. When you have figured out these numbers, then you will have your budget and it will be easier to find car financing deals that will be suitable for you. 

Check Your Credit Score

Will it be difficult to get car financing if I am on benefits? Many car buyers believe that car finance companies don't offer deals to people on benefits. This isn’t true at all. Of course, there are lenders that cater to clients of higher income and there are those who specialise in providing financing to clients with varying incomes. 

When you are receiving benefits, this does not automatically mean that you are a high-risk client or you have a low credit score. It's possible that you may have had a good credit record and good credit score before you were receiving benefits.

If you have a record like this, then you have a good chance of getting an excellent car finance deal. So don't hesitate to approach lenders that are seemingly for low-risk clients only. You just might get the deal that you're looking for there.

Be Honest About Your Finances

Lenders also rely on credit reference agencies. These agencies provide pieces of information to car finance companies. The lenders then use such information to assess and decide on whether or not to grant you car financing. 

These agencies cannot give a complete picture of your finances that’s why it is important that you provide car finance companies with the information they can use. This way, they can assess your application better and whether you can afford the repayments or not.

For example, provide proof that you have enough money in the bank or that you have regular income coming in every month. Also, you would want to demonstrate that you are a reliable and responsible borrower because you pay your dues on time. Your credit history will be very important to your application. 

What to Watch Out For

There are also some things that you should watch out for when it comes to car finance on benefits. So many car financing options are available today and it's so easy to make the wrong choice that doesn’t suit you. It's important that you take your time in assessing which car finance company to choose to make your car purchase possible. 

Higher Interest Rates

If you want car financing while on benefits, watch out for higher interest rates. Many lenders actually take advantage of people on benefits or people with disabilities by offering them financing deals with incredibly high interest rates. Don't feel that you have to settle for this kind of deal. You can still look for other lenders who will give you a reasonable interest rate even if you are on benefits. 

Deals That Seem To Good to Be True

You should also be aware of lenders offering 0% interest rates. When something is too good to be true, it usually is. These lenders may give a 0% interest deal but they’ll get more money out of you by setting the car’s price higher. 

You would want a car finance company like Carmoola that can give you a proper breakdown of the cost of financing such as the price of the car, interest rate, contract length, and so on. This way, you can clearly see what you’ll be paying for. It shouldn’t be bundled up into one big amount. 

Application Fees

Another thing to be aware of are brokers charging financing application fees. They may even tell you that whatever you pay them is refundable. However, if you do ask for a refund, it will take a long time for you to actually get that money back. It’s just not worth it to go through all that hassle. You shouldn’t have to pay to apply for car finance. So, you have to be careful with such schemes. 

Key Points to Remember

Keep in mind as well that you shouldn't make too many car finance applications within a short span of time. Each car finance application would require a hard check on your credit report and that will knock off several points on your credit score.

Also, too many applications will make you seem desperate for credit. This will not look good when car finance companies assess your application. So before you do apply for car finance, make sure that you are certain about the company or the lender so that you only have to make one application.

If you want car finance while on disability benefits, you should know that lenders shouldn't discriminate against you based on your mental or physical condition. This is against the law.

If the lender tells you that you cannot get car financing from them or that the interest rate should be higher because of your condition, then what they're doing is wrong and illegal. It's not worth your while to do business with them.

Car Finance on Benefits

Many lenders might take advantage of your specific circumstance. If they are offering a deal that just seems too good to be true, you may want to step back and do some checks first. 

Before you get car finance, it’s important to be realistic with your budget and stick to it. Keep in mind also that it’s your money so don’t feel pressured to sign a deal even if you don’t like it. You should be able to assess things first and then decide on your own before agreeing to any car finance deal.