Can I finance a car for my daughter/son?

Use a guarantor car loan

A guarantor loan is one way of financing a car for your son or daughter. This type of car finance agreement works similarly to a normal loan, in the sense that your child will be responsible for making the agreed repayments. However, it also allows for a third party (i.e. you) to guarantee the repayments in the case that your son or daughter is unable to make them. By being a guarantor on the agreement, you are reducing the risk to the car finance lender. This can increase the likelihood of securing car finance on behalf of your son or daughter.

Guarantor loans are a big responsibility for both of you. Should your son or daughter fail to make the monthly repayments, you would be liable for the debt. If you fail to make the payments on behalf of your child, both of you could be issued with a County Court Judgement (CCJ) and you would both have damaged credit profiles, which would affect your ability to secure finance in the future.

A guarantor loan can create an opportunity for your son or daughter to improve their credit score for the future. An improved credit score will increase their chances of being approved for any future financial agreements they wish to take.

Joint application for a car finance agreement

A stronger option for financing your son or daughter’s car is with a joint application – an agreement in which both of your circumstances are taken into account. This is especially useful when your child has a good income but a slightly poorer credit score.

In this case, both parties are responsible for upholding the repayments, and if one is no longer able to meet their financial commitments, the other must pick up the full amount. The risk with this kind of agreement is that any missed repayment (from either party) will be recorded on both parties’ credit files. However, if you are supporting a child with a good income but a less-than-perfect credit score, this is an option to consider.

Can’t I just get car finance myself?

When buying a car for your child, you might think it would be simpler to just apply for car finance as if there are no other parties involved. This would mean getting a car loan, then putting your own name on the vehicle registration certificate, before later switching it to someone else’s name.

However, this can be classed as a fraudulent act. Whether you’re acting as a guarantor or making joint applications, it’s vital to be upfront and honest with every car finance company. That extends from who the main driver is to details about your financial history.

Different types of car finance

Whichever route you choose to help your daughter or son get their own car, there are a few additional choices. We’re talking about the types of car finance for which you’ll be making a joint application or acting as the guarantor.

The best option for you and your family members depends on your financial position and whether you want to own the car outright.

Hire purchase

Hire purchase is the most straightforward type of car finance. The total cost of the car plus interest is broken down into monthly payments. At the end of the agreement, you’ll be the legal owner of the car.

Personal contract purchase

Personal contract purchase gives you a bit more flexibility with a new car. These car loans also include the cost of the car plus interest. However, a big chunk of that is set aside for a final balloon payment. As a result, your loan repayments are lower for the duration of the car finance deal. At the end, you then have the choice between making the final payment to own the car. Or you can give the car back and get a new car on finance, or make other arrangements.

Personal contract hire

Finally, there’s personal contract hire. Also known as leasing, you essentially pay to use the car for the duration of the car finance agreement. At the end, the car goes back to the finance company. Because there’s no chance of car ownership, it’s often the lowest cost – making it a better deal for those on a tighter budget.

How the process works

To give you a little more insight into getting a car on finance on behalf of someone else, we’ll run through some of the key steps involved:

• Start by getting a car finance quote from multiple lenders. Not all lenders will accept joint applications or provide guarantor loans, so you may have to shop around a bit. You can make this easier by using a car finance broker like My Car Credit – we compare deals from a large network of trusted lenders.
• Credit history will be checked for you and your child. Initially, some lenders will perform a soft check on your credit profile, which doesn’t affect your credit rating. This gives them an overview of whether you have a good credit history or a poor credit score, for example. At the latter stage, a hard check will be needed. Too many of these can impact your credit rating, so it’s important not to allow too many.
• If you have multiple options based on your personal details and credit scores, you can choose the best deal for your requirements. Compare the interest rate (often different to representative APR) and length of the contract, plus how that affects the total cost. Remember, it’s not just about cost – consider eventual car ownership and vehicle mileage limits too.
• If you’re happy to proceed, you’ll enter the credit agreement, paying monthly by direct debit in most cases. It’s an exciting time, but make sure tax and car insurance are sorted before driving your car. Your insurance policy should cover both you and your child.

Speak to our car finance experts

Financing your child’s car is a matter of pride for lots of parents, especially when it’s their first car and they’ve just passed their driving test. But you must consider all your options before signing onto a car finance agreement.

Guarantor loans and joint finance are two ways to get your child up and running with My Car Credit – whilst our online application form doesn’t allow for adding in an additional person, our experienced Car Credit Specialists can help you with this over the phone. Simply give us a call on 01246 458 810.