Can I get car finance for my son or daughter?

Is there anything better than seeing your child buy their first set of wheels and head out on the open road for the first time? (Probably the first time they say “I’ve got dinner sorted.”)

If your child is ready to buy their own car, you might be tempted to help them out. While there’s nothing wrong with gifting them their first car or giving some money to go towards their deposit, getting finance on their behalf could be considered fraud.

 Read on to find out exactly what the rules are when it comes to getting car finance for your son or daughter:

Can I get car finance for my child?

Once your child has passed their driving test, has that all-important pink licence (!!!), and is ready to buy their first car, as their parent, you may want to help out.
While this is perfectly acceptable (and could be very actively encouraged by them) in some cases (we’ll explain in more detail below), you can’t get car finance on their behalf. 
In fact, if you do apply for finance and don’t make it clear that your child will be the registered keeper and main driver of the car, you could be committing a criminal offence. This is considered fronting and could lead to you being accused of fraud.
Some lenders will provide specialist accommodation finance. This is where the agreement is designed so that it is in your name but you won’t be the car’s main driver. However, you may be able achieve the same goal with a standard lender, provided provided you’ve told them about the arrangement and they have confirmed they are happy. This helps to protect you against the risk of being accused of fraud.

It is important to note that lenders do not have to accept you for an agreement on this basis, it is their decision and in most cases, they will ask that the person signing on the dotted line is also the person who will be responsible for the car and be its primary driver.

If you take out your own Hire Purchase (HP) deal and once all the payments are made and you’re officially the legal owner (congrats!), you could always gift the car to them (double congrats!!).

Why can’t I get car finance for someone else?

Car finance agreements aren’t one-size-fits-all. They’re tailored to you and based on the details you supplied in the application process. This means that the amount you can borrow, the loan term, and the interest rate you’re given will all depend on your individual circumstances, financial history, credit score, address, occupation, and income.
It’s this information that lenders use to weigh up the risks involved and make the right decision. They must act responsibly and ensure the finance they offer is appropriate for you.
If you take out car finance for someone else using your details, the lender’s decision will be based on the wrong information, and you’ll have bypassed all the safeguards put in the place to protect both them and you.

What other finance options are available?

While accommodation finance might not be available to you, there are other ways you can help your child get behind the wheel of their own car.  
You might be able to improve your child’s chances of qualifying for a finance agreement if you can reduce the amount they need to borrow. This typically means putting down a larger deposit upfront, which you could give as a cash gift to your son or daughter.
If you don’t have the funds to buy a car for them outright and your child doesn’t qualify for finance, it may also be possible for you to take out a personal loan. These typically aren’t secured against the vehicle so don’t have the same terms and conditions as an HP or Personal Contract Purchase (PCP) deal. Instead, as soon as you’ve used the loan to buy the car (assuming you keep up with the repayments), you’re free to give it to your child.

What’s guarantor car finance?

When searching for ways to get car finance for your son or daughter you’ll probably have come across guarantor finance.
This type of finance can help your child get approved for a loan even if they don’t have an extensive credit history.
The loan will be in their name, but if you decide to act as the guarantor, you’ll be agreeing to step in and make the finance repayments if they can’t. You’ll usually need to have a good credit score to act as a guarantor and some lenders will require you to be a homeowner too.
Guarantor car finance could be a great option for your child if they’ve found it tough to find finance on their own but would like to start building their own credit history and can afford to make their own payments.

What’s joint car finance?

Joint car finance is a type of loan that you apply for with another person, in this case with your child.
The loan will be in both your names and can be a good option if your child has a poor credit score or limited affordability so might struggle to secure finance on their own.
But, as their name suggests, joint loans form financial links between the two of you
You’ll both be responsible for making the repayments and both your credit scores can be impacted by how well you manage the loan so it’s important you only make this commitment if you can afford to make the full repayment amount yourself or trust your child to fulfil their end of the deal.

How old does my child need to be?

Anyone can take their driving test and officially drive on the road unsupervised from the age of 17 however, they need to be 18 to qualify for a car finance agreement in the UK.
Unfortunately, it can be tough for younger drivers to secure loans. This is because they typically won’t have much of a credit history, so lenders can’t be sure whether they’ll be a responsible lender. They might also not have much disposable income, especially if they’re a full-time student or have a low paying entry level job.

How can I help them improve their chances of being approved?

If your child would like to secure their own car finance loan, there are steps you take to help them improve their chances of being approved:

Help them improve their credit score

If your child has just turned 18 or is still aged under 21, they might not have much of a credit history. And while credit isn’t the only thing lenders consider, it is an important factor. Help them start building their score by encouraging them to register on the electoral roll and to take out small, manageable types of credit such as a mobile phone contract or limited balance credit card (with a Direct Debit set up to ensure the balance is paid in full each month).

Help them find a cheaper car

Just like helping your child with a deposit, supporting them to find a cheaper car can also reduce the amount they need to borrow and boost their chances of securing a loan. Consider looking for reliable used cars with small engines as these are typically cheaper and a good choice for a first car.

Help them with a deposit (if you can!)

A smaller loan amount represents less of a risk to a lender, which may make them more willing to take a chance on a younger driver with a limited credit history. If you can help your child to put more money down upfront, they’ll likely need to borrow less and could improve their eligibility.

FAQs About Buying a Car on Finance for Your Child

Can I pay for a car for my child?

If you’d like to buy a car on your child’s behalf, there’s nothing stopping you from buying a car outright in cash and giving it to them. Just make sure you complete the V5C to transfer it into their name, so that they become its official registered keeper.

Can I buy my child a car without tax implications?

In most cases, you won’t have to worry about any tax implications when buying your child a car as a gift.
However, legally speaking, you have an annual tax-free gift allowance of £3000, which can be rolled into the second year to give you an overall total allowance of £6000.
If you’ve bought a car that’s worth more than the allowance and you sadly pass away within seven years of giving it as a gift, it may be subject to inheritance tax.

Can I insure my child’s car in my name?

If your child is the main driver of the car, you can’t take out insurance in your name instead. This is also fronting and is considered fraudulent. Instead, you can be added as a named driver on their policy (which may lower their premium) or, if they regularly drive your car instead of having their own, you can add them as a named driver on your policy.

Can an 18-year-old get car finance?

An 18-year-old can legally get a car finance agreement, but unfortunately, it’s not always that easy. It can be harder for young drivers to find car finance because they’re just starting out in life. This means they probably won’t have much of a credit history or a lot of disposable income to put towards a car finance payment. Instead, they may need to enter a joint car finance agreement or a guarantor loan with someone who already has a good credit history to qualify for a loan.