Can a Parent Get a Loan to Buy Their Child's Car?
Getting your child their first car can be a mix of emotions. There's the joy of seeing them gain independence, but also the worry about how to pay for it.😱
Like many parents, you may be wondering if you can step in and help finance your child's vehicle. Unfortunately, the answer may not be as straightforward as you think.
In this useful blog, we'll explore the options available if you are considering taking out a loan for your child's car.🚗
Options for Financing Your Child's Car
There are a couple of options available if you want to finance your child’s car. You can either choose a bank or a guarantor loan.
Many people think about bank loans first, but there's a catch - Most banks have age restrictions which can mean younger drivers, like your kid, may not get the loan on their own.
Of course, you can always take out a personal loan from a bank and buy a car outright for your child. If you have a great credit score you could receive a low-cost deal too.
Guarantor loans tend to be the best option for younger drivers. With these loans, someone else (like a parent) promises to pay the loan if the young driver can't.
These types of loans provide a safety net for the lender. They can also help young drivers begin building up a good credit history.
In terms of traditional car finance, it isn’t possible to take out an agreement on behalf of someone else. However, you could make a joint application provided you will also be driving the vehicle.
Before deciding which option to go with, we recommend you calculate car finance budget. This will give you an idea of how much it will cost.
Transferring Car Loans: What to Consider
Transferring a car loan isn't as simple as handing over the keys. There are some critical aspects to consider if you don't want to run into potential issues with the lender.
Firstly, you can’t simply let your child take over your finance agreement. Instead, they would need to make their own application.
Here’s some factors to consider before deciding if a car loan transfer is the right option:
The Original Loan Agreement
Always start by revisiting the terms of your original loan agreement.
Whether you have taken out a hire purchase, or PCP agreement, there may be clauses that restrict the transfer of the loan to someone else.
Driver vs Financier
Most lenders require the person driving the car to be the one financing it. Ensure you communicate any intended changes with the lender to avoid breaches in the agreement.
Joint applications can be an ideal way to help finance your child’s car. This setup keeps both parties in the loop and can provide more assurance to the lender.
Remember, if your child fails to make timely payments on a loan that's in your name or under a joint agreement, it could adversely impact your credit score.
Make sure there's a clear understanding of responsibilities.
Changing the primary driver can affect insurance premiums. It's essential to check with your insurance provider about any changes in cost or coverage before transferring.
Loan Transfer Fees
Some lenders may charge a fee for changing the loan agreement or transferring it to someone new. Always ask about potential charges to avoid unexpected costs.
Early Repayment Penalties
If you’re considering paying off the loan early before your child takes out a new finance agreement, there may be a fee involved. Many lenders charge an early repayment fee.
Transferring a car loan is doable, but it's essential to follow the right procedure.
Considering the points above and communicating openly with your lender, it ensures the process is smooth and beneficial for both you and your child.
Risks of Settling Someone Else's Car Loan
Acting as a guarantor or settling someone else’s car loan does come with its share of risks.
When you agree to cover someone else's loan, you're taking on their financial responsibility. If they fail to make payments, it falls onto you, and this could impact your credit score.
It’s also important to remember the minimum age for car finance.
If your child is under 18, they won't legally hold the contract, which means more responsibility on your end.
Smart Ways to Fund Your Child's Car Purchase
If you want a fuss-free way of funding your child’s car purchase, here’s the smart way to do it:
Save up: If you can, try saving a bit more before buying. This means you'll borrow less, and it may save you money over time.
Team up: Think about getting the car together so both of you can share the costs. It's a great way to teach your child about money and sharing the load.
Think used: Brand new cars are exciting, but used cars can give you a much better deal. They can be just as good and save you money. It's all about finding the right one.
Remember, taking out a car finance agreement for your child without informing the lender is fraud. You could face serious repercussions if you go down that route!
If you are considering taking out car finance, applying through Carmoola is simple. We offer finance to drivers aged 18 and over.
The entire process can be completed via our car finance app, making it fast, convenient, and simple to apply.👍
Read more about car finance for young drivers:
- Can Car Finance be in Someone Else’s Name?
- Everything You Need to Know About Car Finance for Young Drivers
- What Are the Cheapest Cars to Insure for Young Drivers?
FAQs About Getting a Loan to Buy Your Child’s Car:
Can a parent secure a loan for their child's car?
Yes, a parent can secure a loan for their child's car, either by co-signing the loan with their child or by taking out a personal loan in their own name.
Can you finance a car at 17?
In the UK, you typically need to be 18 or older to enter a finance agreement directly. However, a parent or guardian can become a guarantor on behalf of someone who is 17.
How can parents responsibly finance a car for their child?
Parents can responsibly finance a car by choosing a loan with affordable monthly payments and educating their child about responsible financial management.
Is it possible to transfer a car loan to your child's name?
It typically isn’t possible to transfer a loan over to your child, though some lenders may consider it if you go through the appropriate application process.