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Can a Parent Get a Loan to Buy Their Child's Car?

Aaaah how time passes in the blink of an eye… Your child is growing up: they are in need of their first car ever, though their childhood seems as if it were yesterday 😳… Buying your child’s first car can be a thrilling time, and also a daunting one. There are so many things to think about - safety, comfort, design… And most importantly, how on earth are they going to pay for the car? 😱 Can you help them?

Today, we’re going to be exploring whether or not a parent can get a loan for their child’s car. Getting a loan on your child’s behalf so that they can purchase a car seems like a tempting option, however, things are slightly more complicated than they seem. Though there are definitely ways to accomplish this, you’ll have to know what to consider in order to achieve the exciting goal of securing your child’s first car! So, without further ado, let’s dive right in. 

Can You Transfer Your Car Loan to Someone Else?

Unfortunately, it is 100% illegal to take out a loan on someone’s behalf in the United Kingdom. Whichever car finance agreement you’re applying to - Hire Purchase (HP) or Personal Contract Purchase agreement (PCP) for example, there is no possible way to transfer your car loan to someone else. And if you’re thinking “can I add someone to my car loan”, that’s not possible either. Let’s find out why. 

The Risk With Paying Off Someone Else's Car Loan

If you take out a loan on your child’s behalf, essentially what you’re doing is called ‘fronting’, which is classified as a type of fraud. In car finance, fronting is the act of one person taking out a loan for someone else, without being completely transparent about it to their car finance provider. This is actually considered as a criminal offence and can be fined or even prosecuted for. Therefore, it’s really important to be upfront about your intentions with your lender. 

Effectively, you’ll only be able to put a car in your child’s name when you’ve finished paying for it. That’s because your car finance provider will be giving you a loan based on your own financial circumstances, not anyone else’s. Otherwise, they could be exposing themselves to the unknown risk of someone not paying the loan back - someone whose personal situation, credit score, and reimbursement capacity which they haven’t been able to check. That is why you won’t be able to put a car in your child’s name while you are still paying a loan back on it.

Okay, yeah, this sounds like bad news. But let’s not panic - there’s still hope yet. The fact that you can’t get a loan in your child’s name still leaves you with three other options: 

  • Applying for a guarantor loan
  • Taking out a joint loan, or co-signing the agreement with your child 
  • Setting up a direct debit for the amount of the loan into your child’s bank account monthly

Before we go over these three options with their own sets of benefits and drawbacks, let’s explore a few crucial points. 

Car Finance For Your Child

What’s the Minimum Age for Car Finance?

In the UK, your child can drive a car legally from 17 years old. But if they want to apply for car finance they’ll have to be at least 18 years old. They will also need to have a good credit history by that time, though this may not be possible if they are still full-time students.

Can You Register a Financed Vehicle in Someone Else’s Name? 

You can’t buy a car using car finance in your name and then give that car to somebody else. This is called fronting and is illegal. Your finance agreement will depend entirely on your own financial history and other very personal criteria, so the loan you take out only pertains to you. Of course, you’re absolutely free to purchase a car for someone else, as long as any loan is in their name. 

Solutions to Buy a Car For Your Child

Applying for a Guarantor Loan

When your child turns 18, they’ll be allowed to apply for car finance on their own. However, they might find it hard to come across an agreeable lender, especially if they don’t have much credit history built up yet. One solution is to act as their guarantor for their car finance application. 

By being a guarantor, you are vouching for your child and you guarantee that they will be able to pay the amount due every month throughout the contract period. And as a guarantor, if your child cannot pay, you will bear the responsibility of making payments on their behalf.

If your child misses payments and you cannot pay, your car finance provider will most likely repossess the vehicle. This will hurt both your credit scores and therefore affect your ability to take out loans in the future. That’s why a guarantor loan isn’t something to take lightly. 

The Co-signed or Joint Loan

You could also choose to go for a joint loan, which means that you and your child are co-signing for the car loan. This can be especially suited to a situation whereby your child has a good source of income but a slightly weak credit score.  

You will both be responsible for upholding the repayments. Any missed monthly repayments from either party are recorded on both of your credit records. The joint loan is our preferred solution here at Carmoola, because of how effective it is at sharing out the responsibility of a loan between two people. 

The Direct Debit Method

We totally understand if your child is thinking: “can someone else pay off my car loan?”. We all need a bit of a boost when we start out, so the thought is definitely not uncalled for. As a parent, you’ll want to do everything you can to help your kiddo out when they start off in life. However, that can sometimes be difficult, especially when navigating something like car finance which can get confusing. 

If you’re not in a position to be able to take out a joint loan or act as a guarantor for your child, whether it is because you have a low credit score or because you simply don’t want to, there’s one last solution left. You can simply set up a direct debit for the amount of the car finance loan into your child’s bank account each month. This means that they will be taking out a loan in their name, based on their own personal circumstances, but you’ll be helping them with the financial burden. 

The Bottom Line

Taking out a loan to buy your child’s first car is a big responsibility. As a parent though, it is so tempting to give your child the freedom and enjoyment that comes with having their own ride. Having their own car can teach a lot about being responsible and caring for something of value. What’s more, encountering the car finance world at a young age is a great way of acquiring financial literacy 😎. 

Here at Carmoola, we have all the tools you need to explore car finance with your soon-to-be car owner child. Take a stroll through our blog, which has an ever-growing database of in-depth guides and resources, use our car loan calculator or download our car finance app today. 😊

We’d love to hear your thoughts on this article!

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