Can You Get Car Finance If You’re Retired?

Date Posted 20th July 2021
Read Time 8 min read
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For many, retirement marks the time you can finally relax after decades of working. At the same time, though, your finances change and incomes can drop. So what happens if you need or simply want a new car? 

Can you get car finance on a retirement income? What are the lenders looking for? And can you do anything to improve your chances? 

Car finance in retirement

Driving can be more important than ever as you get older. 

For some, retirement is the ideal time to reward yourself with a new car or even your dream car. 

As working life ends and you have more time than ever to travel, some will wish to visit friends and family more or explore new places – all of which are considerably easier with a car. For others, it’s simply about independence.

But retirement is also a time that your income traditionally drops and you need to make your money stretch further. Not everyone is in a position to buy a car outright, but don’t worry – you can still get car finance if retired.

Before you do so, though, it’s important to understand how car finance in retirement works and how you can tackle any potential challenges.

What do lenders look at if you’re retired?

There are many misconceptions when it comes to car finance and what lenders look for when deciding whether to accept an application. 

Employment status

One of the main misunderstandings is that you have to be in regular employment to be accepted for finance.

While lenders do consider whether you’re employed or not, what they’re really looking for is evidence of a regular income. Whether that comes through a job or through a personal pension, it really doesn’t matter. 

Your age

Age is really just a number when it comes to car finance. If you’re over 18, you can apply. 

And, for the most part, as long as you can prove you can afford the monthly payments for the duration of the agreement, then you have a good chance of being accepted. 

However, each lender has its own criteria, and it’s possible that some will impose a maximum age limit, so it’s best to check before you apply or use our soft search here which won’t impact your credit score. 

Your credit history

Your credit history gives lenders a good picture of how you’ve managed your money in the past and how much of a risk you pose as a borrower. 

If you’ve missed payments or have a lot of debt, your score will be lower and it may be harder to get car finance.

Affordability

Although having regular employment isn’t too important to a lender, having a regular source of income is. 

In retirement, you can often have several streams of income – various pensions, savings or investments. The lender will be looking at your total income minus essential outgoings, such as mortgage payments, utility bills and food, to estimate your disposable income – the amount you can afford to spend on monthly car finance payments. 

Car leasing in retirement

Leasing has increasingly gained in popularity over the last few years, but it may not be something you’ve considered before. 

However, for many in retirement, this way of getting access to a new car is a good, flexible choice.

How does car leasing in retirement work? 

Car leasing is much like a long-term rental agreement. You make fixed monthly payments over a period of two to four years in exchange for using the car. 

With a personal contract hire agreement, when the lease ends, you return the car without any further obligation. And as long as you’ve kept to the terms of your contract, you’ll have nothing else to pay.

Leasing can be a much more cost-effective way to fund a new car, as well as having the flexibility of not being tied into car ownership. 

And if your needs change over the course of your retirement – you have more grandchildren, or you need a more accessible vehicle for instance – you don’t have to worry about the hassle of selling your car and buying a new one. 

Plus, it means that you also don’t have to tie your savings up in a depreciating asset.

Affording a car lease in retirement 

Car leasing is often cheaper than many car finance options, as there’s no ownership involved. At the start of the agreement, a deposit is sometimes required – although all our lease deals come with a £0 deposit option – which is followed by a set period of fixed monthly payments. The larger the deposit, the lower your monthly payments will be.

The cost of your monthly payments is determined by several factors, including the length of the agreement (the term) you choose to take out. The longer the term is, the lower your payments will usually be, as the total cost is stretched over more months – although you’ll pay more in interest.

Something else that has an effect on your monthly payment amount, though, is mileage. If you’re expecting to drive less in retirement, this actually can be a huge benefit.

Annual mileage allowance

At the start of your car leasing agreement, you’ll be asked to estimate how much mileage you expect to do over the course of a year. 

The average mileage for people that are working is around 10-12,000 miles a year. The average mileage overall in the UK is around 8,000 miles.

Car leasing payments are calculated based on the depreciation of the value of the car over the duration of the agreement. This means the more miles you drive, the more your car value will depreciate. So, the lower your mileage allowance, the lower your monthly payments will be.

Maintenance costs

One benefit of choosing to lease a car is that, as they’re typically new, they usually still fall within the manufacturer’s warranty for part, if not all, of the term. 

Many lease deals also have the option of a maintenance package. For a small extra cost that’s weaved into your monthly payments, it means less worry about any unexpected repairs or service bills.

Can I use my pension to lease a car?

Yes, as long as you can demonstrate that you’ll be able to keep up with repayments, any legitimate income is taken into consideration when it comes to leasing a car. 

In fact, for those who have decided to take their lump sum from their pension, it’s possible to use this as a deposit on a car – bearing in mind the bigger the deposit, the lower your monthly payments.

Benefits of leasing a car in retirement

Leasing isn’t right for everyone, but for those in retirement with a fixed income, it can give you access to a better car and more flexibility throughout. 

Lower monthly payments

Monthly lease payments are, in general, lower than other types of car finance, such as personal contract purchase (PCP) or hire purchase (HP).

Access to the latest models

Leasing is only available on brand-new cars. This means the latest gadgets and most up-to-date safety features too.

Warranty protection

As you can only lease a brand-new vehicle, it’ll fall under the manufacturer’s warranty giving you added protection from unexpected repair bills.

No ties of car ownership

Being able to walk away once you’re finished with the car means less hassle of selling or part-exchanging. The later in retirement you are, it can be even more suitable, especially when you reach a point when you longer want or are able to drive a car.

Should I buy or lease a car in retirement?

Choosing whether to lease a new car or buy it in retirement largely depends on your own circumstances and priorities. For some, the decision will hinge on finances and lower monthly outgoings. For others, owning a car is more important. 

Whatever you decide, we can help. Our team of experts are here to answer your questions. 

Or, if you’ve already decided leasing is right for you and would like to find out whether you’ll be approved, you can do so by using our quick and easy Apply Now form. 

Just click the banner below, fill out a few details, and we’ll let you know within minutes if we’ve found a lender suitable for your circumstances.