If you’re on benefits, you may assume that you won’t be able to take out a vehicle loan. And while it can be more challenging, some lenders will consider your application, even if you’re solely in receipt of benefits. Your individual circumstances will need to be taken into account, but as you’re receiving a regular income, you may meet the criteria of some car finance providers. We’ve explored this topic in more detail below.
What is Car Finance?
Car finance can be a great way to spread the cost of buying a vehicle. Rather than paying for the entire cost outright, you can make a deposit, and then pay monthly instalments. Vehicle loans are usually split into two categories - hire purchase and personal contract purchase.
Hire Purchase (HP)
A hire purchase agreement is much like any other form of secured loan. The money you borrow is secured against a valuable asset - in this case, your car - and you’ll make regular payments to cover the cost of the loan, alongside any interest applied. And as the loan is secured, this means that there is less risk for the lender, making these loans more accessible than unsecured loans. You do need to keep in mind though that if the loan is defaulted on, the lender does have the option of repossessing your vehicle.
Personal Contract Purchase (PCP)
With a PCP agreement, while you’d be making monthly instalments in a similar way to a hire purchase contract, these payments won’t be covering the price of the vehicle. Instead, you’d be paying towards the depreciation of the car. This is the difference between the initial cost of the vehicle and how much it’s expected to be worth at the end of the agreement.
When your term finishes, you can then decide whether to buy the car outright by making a balloon payment, enter into a new contract, or hand back the keys and walk away entirely. One of the main benefits of a personal contract agreement is that because you’re covering the depreciation, and not the entire cost of the car, the monthly payments tend to be cheaper than with a HP agreement. The downside is that if you do want to buy the car at the end of the contract, you may need to pay a large balloon payment as a lump sum.
Can I Get Car Finance on Benefits?
Not all vehicle finance providers will lend to someone who is solely in receipt of benefits, but many will consider an application from an individual who has an income through both wages and benefits. For instance, if you have a monthly wage of at least £1,000, and are also getting benefits, the lenders we work with should consider your application.
There are two main factors that will impact your chances of loan approval when on benefits - how much you’re able to put down as a deposit, and how good your credit score is. In terms of the former, as a general rule, the larger your deposit, the lower your monthly payments, making the loan more affordable. Paying a big deposit upfront also demonstrates to the lender that you’re able to save money, and manage your finances well.
When it comes to your credit rating, for the most part, the higher your score, the better chance you have of being approved for a loan. If you’re not sure how good your credit score is, you can check for free using sites like Credit Karma and Experian. It’s also a good idea to use a car finance calculator before applying, to give yourself an idea of how much your monthly instalments would be.
What Sorts of Benefits Might Be Accepted?
Benefits come in all shapes and sizes! And with car finance, it doesn’t tend to matter what sort of benefits you’re receiving - the main factor is how much you’re earning in total. Common benefits include:
- Universal Credit (UC) - These benefits can cover all sorts of things, and are intended to pay for general living costs
- Employment and Support Allowance (ESA) – ESA is an out of work benefit, intended to help those with a health condition or disability that affects how much they’re able to work
- Personal Independence Payment (PIP) - Similar to ESA, PIP provides support for people with long-term health conditions or disabilities
And if you’re in receipt of any other benefits, there may still be lenders who are able to help you - get in touch with our friendly team to find out more.
What Could Affect My Application?
Being on benefits may not prevent you from getting a car loan, but there are other factors that could result in your application being rejected. For example, if you’ve been made bankrupt recently, or have applied for an insolvency solution, you may find it more difficult to take out vehicle finance. The same applies to anyone with a CCJ (County Court Judgement) on their credit file.
Someone with a poor credit history may also struggle to get a vehicle loan, though there are lenders who specialise in bad credit loans. And bear in mind that there are things you can do to improve your credit rating.
Car Loans for Bad Credit
As mentioned above, there are lenders who may consider your application, even if you have a low credit score. These lenders understand that your credit rating isn’t necessarily an accurate reflection on how you manage your money, especially as most details stay on your credit file for six years. So late payments from years ago could be impacting your loan approval chances now!
Wheelie Good Finance works with a number of lenders who will look at more than just your credit score when making a loan decision - they’ll also look at things like your monthly income and expenditure. That way, they can ensure that the loan repayments are affordable. To get started, simply click on the ‘Apply Now’ button below, and we’ll do our best to find you a suitable lender!