Can I finance a car for someone else?

Car finance can be a great way to hit the open road in a new set of wheels without having to stump up the full price of the car upfront. But it can be harder to get a decent finance deal if your credit score isn’t in great shape, or if you’re young and just starting to build your credit history. 

If you know a friend or family member in this situation, struggling to get a good car finance deal, you might be tempted to help them out by financing a car on their behalf. We admire your generosity, but even if you have the purest intentions, financing a car for someone else could get you into serious trouble.

What options are there to finance a car for someone else?

Before we go any further, let’s start by being super clear about one thing: you can’t take out car finance for someone else. You can’t finance a car in your name and then give it to someone else. This is known as ‘fronting’, and it’s illegal. If you take out a car finance agreement, it’s in your name, and you’re the one responsible for the car and the repayments.

You might be a generous soul, wanting to help out a friend or family member by helping them get a car. The easiest way for you to do this is to give them the money to buy a car outright. Or if you want to give someone a car you’re buying on finance, you’ll need to settle the finance agreement first. Once the car is fully paid off and legally yours, you’re free to gift it to anyone you like (or anyone you don’t like, for that matter).

One thing you could consider is joint car finance, where you and another person enter into a car finance agreement together. You’re not financing a car on their behalf - the two of you are in it together.

How do joint car finance agreements work?

A joint car finance agreement is pretty much what it sounds like. It’s when two people take out car finance together, and both those people are equally responsible for the car and keeping up the monthly repayments.

The application process is much the same as a standard car finance application, except that you’ll need to provide the details for both applicants - you and your partner, say, or you and a family member - and the lender will carry out a credit check and an affordability check on both of you. 

Once you’ve both signed the contract, you’ll be jointly responsible for making the monthly repayments for the length of the agreement. It doesn’t necessarily have to be a 50/50 split - as long as the full payment is made each month, the two of you can agree the best way to share the cost between you.

What are the legal implications of a joint car finance agreement?

The main thing to bear in mind when it comes to joint car finance, is that the two of you share the responsibility for making the monthly payments. If one person doesn’t cough up their share, it’s up to the other person to cover it. As far as the lender is concerned, the two of you have the same amount of responsibility to make sure that each monthly payment is made on time.

Being part of a joint car finance agreement means that you’ll be financially linked to the other person. This will be added to your credit report, and it means that if the other person gets into financial difficulty of their own, it could have an impact on your credit score too. Having said that, if the other person has a squeaky clean credit report and healthy credit score, being linked to them could be a positive for you.

Because you’re in this agreement together, the way you collectively manage the agreement will affect both your credit scores. Making all the payments in full and on time will give both your credit scores a boost, but if you miss payments or pay late, then both of your credit scores will take a hit.

What should I consider before entering a joint agreement?

Joint car finance can work really well for some people, but it’s not for everyone. Before you jump in, make sure the person you’re co-signing with is someone you trust. The two of you are equally responsible for the financial commitment, so you want to be confident that the other person will hold up their end of the deal.

Consider whether you’re happy to share a car with the other person, rather than being the only legal owner. It’s also worth bearing in mind that money matters can put a big strain on relationships, so if things between you and the co-signer are unpredictable, it may not be wise to enter into a joint car finance agreement with them.

Having said that, joint car finance can be a good option if one person has a lower credit score or a lower income than the other person, and would struggle to get a loan on their own. In this scenario, as long as there’s complete trust between the two of you, joint finance can work out really well.

What are the benefits and risks of financing a car for someone else?

Generally speaking, you can’t take out car finance in your name if the car is for someone else. If you take out car finance, the agreement is based on your financial profile, and you are legally responsible for the car and the monthly payments.

But, if you’re a parent looking to take out car finance for your child, then there are ways to do this. Lenders may agree to this as long as you, the parent, are the main driver and owner of the car. The lender would usually stipulate that both you and your child use the car to qualify for finance, and you’d also need to be listed as a named driver on the insurance policy. 

This can be a good way to help build your child’s credit profile to set them up for their financial future, but make sure you’re upfront and honest with the lender so you can avoid any confusion, and to avoid inadvertently ‘fronting’ and breaking the law.

What other options are available?

If you’re looking to help someone get a car on finance, but aren’t keen on taking on equal financial responsibility, then you might want to consider being a guarantor for them. 

Guarantor car finance is when someone takes out a car finance agreement, with an extra person - the guarantor - added to the contract. The main borrower is responsible for managing the agreement and making the monthly payments, but the guarantor agrees to step in and cover the payments if the main borrower isn’t able to.

Having a guarantor on board can help the main borrower to get accepted for a finance deal on better terms than they might otherwise get, and it can help to build up their credit score. But it’s a big ask, and as the guarantor, you’d be taking on the legal responsibility to pay the debt if the main borrower can’t make the payments.