Can I Buy a Car on Finance for My Son/Daughter?
Going through the process of buying your child’s first car is an exciting time. 😃 Maybe they’re going off to uni and need a form of transportation, or maybe they’re starting their first job and need a reliable way of getting around… Whatever the reason, a first car is an important step. 🚗
As a parent, your child’s first car is something you’ll want to help with as much as possible - but just how much can you do exactly? So you might be thinking now - can I buy a car on finance for someone else - i.e. your son or daughter? Well, the answer is actually a tricky one. There are quite a few factors to consider, and they are all important because, at the end of the day, you’ll want to make the most informed decision you can. Let’s discuss it further - can you buy a car on finance for someone else?
Taking Out a Loan on Somebody’s Behalf Is a Big No-No
In the UK, it’s illegal to apply for Hire Purchase (HP) or personal contract purchase agreement (PCP) finance on behalf of someone else, even if that person is your child or parent. This is considered something called “fronting” and it is classified as fraud. So, can you buy a car on finance and put it in someone else’s name?
Unfortunately, no, you can’t finance a car then put it in someone else’s name until you’ve finished paying for it. This is because of how dependent your finance agreement is on your financial history and situation. Lenders are giving you a loan, not anyone else, which is why you won’t be able to then give your car to your child after having purchased it on finance.
This leaves you with three options:
- To take out a joint loan, which implies co-signing the car finance agreement with your child
- To set up a direct debit for the loan payment amount into your child’s account every month
- To apply for a guarantor loan
The Guarantor Loan - Helping Your Child Finance Their Own Car
One way of financing a car for your son or daughter is by taking out a guarantor loan. A guarantor loan, which is a type of car finance agreement, works like a normal loan - your child will be responsible for making the loan repayments.
However, you’ll be able to guarantee the repayments in case your child isn’t able to make them. Being a guarantor means reducing the risk for the car finance lender, therefore increasing the likelihood of your child getting a car loan. Acting as a guarantor for your son or daughter when they are applying for car finance can be a way of getting around limited credit history. Of course you will need a good credit history yourself!
The Joint Application
A joint application is an agreement whereby both yours and your child's circumstances are taken into account. Cases where your child has a good income but a poor credit score are perfect for joint applications.
Both you and your child will be responsible for upholding the repayments. If one of the two parties is no longer able to repay the loan, the other party is responsible for picking up the full amount. The legal term for this is "joint and several liability". The issue with joint applications is that if there is one missed repayment from either party, it will be recorded on both parties’ credit records. That’s why it’s best to consider this option carefully, and only choose it if your child has enough income to be able to repay the loan in full.
Buying a Car on Finance for Your Under-18 Child
Though your child may be able to pass their driving test as young as 17 years old, they won’t be able to borrow to buy their first car before they’re 18. That’s because UK law prohibits minors from signing credit agreements. However, you can consider helping your child prepare for purchasing their first car on finance, by preparing them with a few tips before they’re 18. then they will be all set to go!
By the way, we’ve made a detailed article about buying your first car at under 20 years old - you might find it useful!
Build Up Their Credit Rating
There isn’t much your child can do to improve their credit rating before they’re 18. The only action they can take is to make sure they’re on the electoral register. Teaching your child about credit scores and responsible credit behaviours is a good thing to do to prepare.
Help Your Child Save Up for Their First Car
Whether your child will be purchasing their first car on finance or outright, you’ll want to help them save up for their first car before they turn 18. This can be through a weekend/evening job and by teaching them to save up, or by asking family to help lend them some money to afford a deposit.
Deciding Which Car to Buy
Preparing for a first car purchase may be through something as simple as getting your child’s heart set on a car. This involves lots of research: how much the car costs to insure, how affordable it is to run, and if there are any extra costs involved. We reckon the best cars for young drivers are:
- Volkswagen up!/Skoda Citigo/SEAT Mii
- Ford Fiesta
- Kia Picanto
- SEAT Ibiza
- Volkswagen Polo
- Hyundai i10
- Toyota Aygo/Peugeot 108/Citroën C1
- Dacia Sandero
- Suzuki Baleno
- Vauxhall Viva
The Bottom Line
Buying a car for your child is an exciting prospect, yes. However, there are a few very important things to consider - careless decisions regarding car financing could mean committing fraud ⚠️. If you’d like to finance the purchase of your child’s car, you have a few options to choose from. You could go for a guarantor loan to help your daughter/son access financing, or you could apply for a loan in a joint application with your child.
If their credit score allows for it, there is always the option of taking out financing in the name of your child, and then helping them pay for the monthly loan amounts. This might be a good way of encouraging your child to keep up a good credit rating throughout their life whilst allowing them to have their first car to take care of and enjoy 😊.