What is accommodation finance?
Accommodation finance is the term used to describe the act of financing a car that is going to be primarily used by someone else. As mentioned, it is legal in the UK, but it’s not accepted practice.
It’s sometimes used interchangeably with fronting, but this isn’t accurate. Fronting is a form of fraud and is illegal in the UK. If you purposely mislead the finance provider by claiming that you’ll be the car’s main driver, this will be seen as a criminal offence, and you could be charged with committing fraud by false representation under the Fraud Act 2006.
Why can’t I take out finance for someone else?
Each lender will conduct a careful risk evaluation when receiving a loan application and this will be based on the individual circumstances of the applicant. They’ll typically consider a wide range of factors before issuing an approval in principle – these will likely include your current employment status, income, living arrangements, credit history, and affordability. It’s the lender’s responsibility to put safeguards in place to ensure that any loan they issue is right for you and your situation.
Typically, when you try to take out finance for someone else, it’s because their credit rating or financial situation means they’re unlikely to be approved or may only be offered a high APR. This means that any car loan you take out will be tailored to you and might not be appropriate for the person using the car. This could leave them vulnerable, as the finance deal won’t have the correct level of risk and affordability for their circumstances. This also poses a risk to the lender, as they may not get their money back if the borrower can’t afford to repay them.
Can you swap finance into someone else’s name?
In the UK, you can’t simply swap an existing car finance agreement into someone else’s name. A car finance loan is a legally binding agreement made between you and the lender, and it will be tailored to you and your individual circumstances. The person for whom you take out the finance will likely have completely different financial circumstances, and so they would benefit more from an agreement that is tailored to their needs. It’s important to be as upfront and honest as possible when taking out car finance, even if you have a bad credit score or are worried about being rejected.
How do I settle my finance early?
If you wish to sell your car before the end of your agreement, you’ll need to become its owner first. With a hire purchase (HP) or personal contract purchase (PCP) deal, the loan is secured against the vehicle and the lender will be its owner throughout the loan term. To settle your car finance early and sell your car, you can request a settlement figure from your lender. They should be able to issue you with a settlement figure at any point during your finance term and this will be the amount you need to pay to end the car finance agreement early (typically your outstanding finance minus any interest). An early repayment charge may apply.
Once you’ve paid the settlement figure and become the car’s legal owner, you’re free to sell or gift it to someone else, or make modifications to it.
Can I get joint car finance?
If your loved one is worried about taking on a car loan alone or concerned that their credit history means they may not be approved, you might be able to enter a joint car finance agreement. In this case, the car finance repayments will be both of your responsibilities and you can both become legal owners of the vehicle at the end of your agreement (in a hire purchase agreement). Restrictions may apply – such as requiring borrowers to share the same address – but a joint car loan might be an option for people who are happy to have their finances linked.
Can I get bad credit car finance?
If you’ve made late payments in the past, had a CCJ, or entered an IVA, your credit score might have taken a hit. A bad credit score can make it more difficult to secure car finance, but it’s not impossible. In fact, you might be able to find a bad credit car finance loan without needing to appoint a guarantor. There are lenders available that specialise in providing car loans for people with poor credit ratings in return for paying a higher rate of interest that reflects the additional risk involved. Or you could consider getting a bad credit loan to pay for the car upfront.
Should I apply for guarantor car finance?
If you have bad credit or have never had credit before, you may find it difficult to obtain car finance. In this case, you could consider a guarantor car loan. Guarantor car finance works similarly to a standard hire purchase loan; it spreads the cost of buying a new car into manageable monthly payments and is subject to interest charges. However, unlike a typical car finance loan, you’ll need to appoint a third party as your guarantor.
Guarantors take responsibility for the loan and commit to covering your repayments if you can’t. If approved, your loan might be paid to the guarantor, who will then release it to you, but you’ll make your repayments directly to the lender instead.
As the guarantor will be stepping up and filling your shoes if you start struggling to make payments, the lender will likely ask them to supply several details and some documentation during the application process, such as proof of identity and proof of income. Guarantors also often need to undergo a hard credit check at the application stage.
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*Representative example: Borrowing £6,500 over 5 years with a representative APR of 19.9%, an annual interest rate of 19.9% (Fixed) and a deposit of £0.00, the amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount payable of £9,964.37. Rates may differ as they are dependent on individual circumstances. Subject to status. We're a credit broker, not a lender.