What are the benefits
of financing a car?

Getting a car through financing opens doors to vehicle ownership while keeping your finances flexible. This approach helps manage costs effectively whether you have savings or receive benefits. Today's car finance options adapt to different income sources, making it easier for more people to get behind the wheel of their chosen vehicle.

What is car finance on benefits?

If you receive government benefits, you can still qualify for car finance. Lenders have created specific programs that recognize benefit payments as regular income. This includes common benefits like Universal Credit, Employment Support Allowance (ESA), and Personal Independence Payment (PIP).

Just like with regular employment income, lenders look at how stable and reliable your benefit payments are. They'll check your total monthly income from all benefit sources to make sure the payments fit comfortably within your budget.

Many finance providers now specialize in working with benefit recipients. They've developed fair ways to assess applications while ensuring responsible lending practices that work for both parties.

Benefits of car finance

Choosing to finance a car instead of buying outright comes with several key advantages. Understanding these benefits helps you make the right choice for your situation.

1. Enables savings preservation

Car finance lets you keep your savings intact for other important needs. Instead of spending a large sum at once, you spread the cost over time while keeping your financial safety net.

Most deals require just 10-20% as a down payment, leaving your savings free for emergencies or investments. You can choose payment terms between 3-5 years to find a monthly amount that fits your budget comfortably.

2. Access to a wider range of vehicles

Financing opens up more choices in your car search. You can look at newer models with better features instead of limiting yourself to what you could buy with cash today.

Finance packages typically range from £5,000 to £50,000, covering everything from practical daily drivers to premium vehicles. This means you can choose a car with modern safety features and lower running costs, even if its total price is beyond your immediate reach.

3. Flexible payment options

Today's car finance comes in several forms to match different needs. You can choose between Personal Contract Purchase (PCP), Hire Purchase (HP), or a personal loan.

• Set your payment date to match when you receive income
• Choose terms from 2-6 years to adjust monthly payments
• Consider options with lower monthly payments and a final balloon payment
• Switch between payment plans if your circumstances change

These options help you create a payment plan that works with your specific situation and income pattern.

4. Improved budgeting and cash flow management

Fixed monthly payments make it easier to manage your budget. Instead of watching a large sum leave your account at once, you can plan around consistent, predictable payments. Many finance deals even include maintenance costs, helping you avoid surprise repair bills.

Modern finance agreements often come with smart payment features. You can set up automatic payments that align with your payday or benefit receipt dates, making it simpler to stay on track.

5. Building credit history

Regular car payments can boost your credit score significantly. Making payments on time shows lenders you're reliable with credit, which can help you get better deals on future borrowing. Most finance providers report your payment history directly to credit agencies, creating a clear record of your reliability.

Just 12-24 months of consistent payments can make a real difference to your credit score. Setting up automatic payments helps ensure you never miss a due date, maximizing the positive impact on your credit profile.

6. Potential tax benefits

If you use your car for business, financing might offer tax advantages. Business owners can often claim interest payments and depreciation against their tax bill, following current HMRC rules.

Self-employed individuals should check with their accountant about specific benefits available to them. Different finance structures can affect what you can claim, so getting professional advice helps maximize your tax position.

How does car finance for people on benefits work?

Income assessment

Lenders look at your total monthly income from all benefits to check affordability. They treat stable benefit payments just like regular employment income when assessing your application.

You'll typically need to show 3-6 months of regular benefit payments. Having multiple types of benefits can strengthen your application by showing diverse income sources.

Affordability checks

Lenders carefully check if the payments fit comfortably within your budget. They'll look at your regular expenses and other commitments to ensure the car payments won't strain your finances.

• Monthly household bills and living costs
• Current loan or credit card payments
• Money left over after essential expenses
• Any expected changes to your benefits

This thorough check helps ensure you can comfortably maintain payments throughout the finance term.

Credit history considerations

Many specialist lenders look beyond just your credit score. They focus more on your current situation and ability to pay rather than past financial difficulties. If you've had credit problems before but your situation is now stable, you still have options.

Some lenders offer specific programs for people with limited credit history or past problems. You might need a larger deposit or a guarantor, but approval is often possible with the right lender.

Proof of eligibility

You'll need to provide clear evidence of your benefit payments. Most lenders ask for recent documents showing your entitlements and proof these payments are going into your bank account.

• Latest benefit award letters showing payment amounts
• Recent bank statements showing regular payments
• Valid photo ID and proof of address
• Details of where you've lived for the last three years

Having these documents ready when you apply helps speed up the process.

Types of benefits accepted for car finance

Most lenders accept a wide range of benefits as valid income. Understanding which benefits count can help you prepare a stronger application.

• Universal Credit - both standard allowance and additional elements
• ESA and PIP - long-term disability benefits
• Child Benefit and Child Tax Credits
• State Pension and Pension Credit
• Housing Benefit and Council Tax Support

Many people receive multiple benefits, which together can show a stable income suitable for car finance.

Applying for car finance on benefits

Successful applications start with good preparation. Gather all your documents and check your eligibility before making formal applications. Many lenders offer quick eligibility checks that won't affect your credit score.

Consider working with a specialist car finance broker who understands benefit income. They can often find better deals and improve your chances of approval by matching you with the right lender.

Remember to be honest about your income and expenses when applying. Providing accurate information helps ensure you get a finance package that works for your situation long-term.

Alisa Dan

6 January 2025