There are many types of benefits in the UK with over four million claims for Universal Credit alone in the past year, according to government figures.
But claiming benefits shouldn’t always be a barrier to you accessing credit including car finance. Lenders look at a range of different things including your credit score, your income, and your financial commitments when deciding whether to give you finance or not, so receiving benefits won’t necessarily prevent you from getting approved.
Here we look at what you need to be aware of if you’re receiving benefits and want to apply for car finance, how to boost your chances of being approved, and the best alternatives to look at.
How can I get car finance on benefits?
It is possible to get car finance if you’re receiving benefits. But, while receiving benefits won’t automatically stop you from getting car finance, whether you qualify for finance will depend on individual lenders and on your individual situation. Lenders will require you to have a minimum income to show you can afford the repayments and although some will allow benefits to make up all, or part of, your income, other lenders may be more reluctant.
The type of benefit you’re receiving is important as this may impact how much money you have available for a car finance contract. For example, if you are receiving benefits but you also have a regular income, a good credit score, and you’re able to show you can manage your money you will be more likely to be approved for car finance.
However, if you’re unemployed or you have a low income, your options will be much more limited. Specialist lenders are available if you’re not able to get car finance from a mainstream lender but the costs will be higher. You may be asked for a higher initial deposit, or the interest rate on the loan could be expensive. Therefore it’s worth weighing up all your options before you make a decision.
» MORE: The different types of car finance explained
Are benefits accepted as a suitable form of income?
In some cases the money you receive through benefits payments can be counted as your income. The decision will be up to the lender but it should let you know in advance which benefits it will accept to be used in this way.
Some benefits that lenders may accept as income include:
- Universal credit
- Housing benefit
- Personal Independence Payment (PIP)
- Carer’s allowance
- Child tax credits
- Working tax credits
How can I boost my chances of approval?
To get one of the best car finance deals on the market, you’ll need a great credit score, a high or medium regular income, and you’ll be able to show the lender you can make the repayments.
However, even if you’re not in this situation, you still have some options. If you receive benefits and you have a low income, for example, lenders may be less willing to loan money to you for car finance at a decent rate. But there are ways to boost your chances of being approved including the following:
Improve your credit score
Along with your income, having a good credit score can help when applying for car finance. There are lots of ways to boost your credit score including always making repayments on time, checking the information is up-to-date and accurate, and minimising your applications for credit.
There are car finance options if you have bad credit, but these can come with higher interest rates.
Joint loan application
If you make a joint application for car finance, with a partner for example, both of your finances will be taken into account. Whilst these agreements are less readily available, they could boost your chances of being approved if the partner you’re applying with has a higher income or better credit score. However, it’s worth remembering as it’s a joint loan, you are both jointly responsible for paying everything back and your credit files will be linked.
» MORE: What are joint loans?
Guarantor car finance
Guarantor car finance is another option. The guarantor agrees to make repayments if you can’t for any reason, which helps to reassure the lender if your credit score or income could be problematic. However, these only work if both parties agree and are aware of all terms and conditions and costs.
» MORE: What is guarantor car finance?
Pay-as-you-go car finance
If you can’t afford a car outright and you’re struggling to qualify for standard car finance, you may want to consider pay-as-you-go finance. This works in a similar way to a Hire Purchase (HP) agreement and you’ll need to pay a deposit upfront and then monthly payments towards the cost of the car.
It is designed for those who aren’t able to access mainstream deals. A black box is fitted to your car, which reminds you each month to make your repayments, and any missed payments could result in the lender immobilising your car. This may be a good idea for some, although it only works if you can afford the repayments, and you fully understand all the costs before you sign up – including those if you do miss a payment.
Borrow a smaller amount
The less you borrow from a lender, the better your chances of being approved for car finance as you present less risk. Your monthly repayments would also be smaller, and therefore more affordable, which is particularly important if you have a smaller income.
You can borrow less through car finance by choosing a cheaper, used car. Also, if you have the available funds, you can also put down a bigger deposit so you don’t need to borrow as much.
If you are receiving benefits, you may be eligible for standard car finance if your income can comfortably cover the repayments. To see what finance agreements you qualify for, you can check your eligibility without affecting your credit score.