You can get an auto loan as a student, but there are certain disadvantages that other borrowers don’t have to deal with.
Let’s look at how car loans work, some of the problems you may encounter when applying for one, and what you can do to enhance your chances of being accepted before determining if a car loan is appropriate for you.
- What Is A Car Loan For Students? And How Does It Work?
- Obstacles to Getting a Car Loans As a Student
- Best Car Loans For Students
- How To Apply For a Student Auto Loan
- Increasing Your Chances of Being Accepted For a Car Loan
- Frequently Asked Questions
What Is A Car Loan For Students? And How Does It Work?
Auto loans are closed-end loans.
That means, you’ll borrow a set amount of money to buy your vehicle and then repay it with interest over the course of the loan, in equal monthly payments.
You may save money on your monthly car payment by taking out a larger loan duration, but you’ll have to pay more in interest.
Shorter terms result in a higher monthly automobile payment (but less overall interest paid).
If you default on your loan payments, the lender has the authority to repossess your car as payment for the outstanding amount.
That’s why you should double-check that you can afford the loan payments, in addition to your other costs, before submitting an application for a vehicle loan.
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Obstacles to Getting a Car Loans As a Student
Many students are just starting their efforts to become financially independent.
But It’s tough to qualify for both traditional and student automobile loans.
Here are the most 4 obstacles you may face throughout the application procedure:
1. You May Get High Interest Rates
To qualify for the lowest rates of interest, applicants must typically be in excellent financial condition and have good credit histories.
If you have a limited credit history or terrible credit, you may not be eligible.
If you meet the qualifications, your loan interest rates will most likely be higher, making it more difficult to pay off the debt.
2. Low Income
Many college students work full-time while studying, yet many do not have a steady or no income.
When lenders evaluate your creditworthiness, they look at your ability to repay a loan.
It might be difficult to get approved for a car loan on either a regular or student basis if you don’t have a steady, dependable income.
3. The Maximum Loan Amounts Is Limited
Some lenders have a maximum loan amount for student automobile loans.
The maximum loan amount for college students is usually about $15,000 to $20,000.
If you don’t have a large down payment, this may prevent you from purchasing the automobile you want.
4. Poor Credit
Financial institutions want to be fairly confident that you’ll pay back a loan on time before approving you for one.
That is why lenders look at a variety of things before making a loan decision, especially your credit history.
Because most lenders will check your credit while deciding whether to give you a loan, it’s a good idea to understand where yours stands before applying.
Lenders may be less inclined to approve your application for a standard auto loan if you’ve never used credit before or don’t have enough credit to establish a good payment history.
The good news is that there are numerous bad credit automobile loans to choose from.
Instead, certain lenders that provide student car loans may concentrate on other criteria, such as employment and academic performance.
Best Car Loans For Students
How To Apply For a Student Auto Loan
1. Make Sure Your Credit Is In Good Standing
Check your credit to see whether there are any mistakes that will damage your credit score, even if you don’t have a good credit history.
2. Calculate How Much You Can Afford
Never buy a vehicle for which payments, insurance, and gas would consume more than 20% of your income.
If the lender is confident in your capacity to repay a loan, you’re more likely to receive one.
A realistic financial plan may help you narrow down the list of vehicles you’re considering, making it easier to compare prices.
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3. Obtain A Co-signer
A cosigner may be required by your lender to get the automobile or loan type you want.
Keep in mind: If payments are not made on time, the credit of both the student and cosigner is harmed.
4. Prepare a Down Payment
Some lenders provide 100% financing for student automobile loans, while others require a down payment.
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5. Collect Your School Documents
There’s the paperwork everyone needs when applying for a car loan, and then there’s the additional paperwork we discussed earlier to verify your enrollment, graduation, and/or future work.
Increasing Your Chances of Being Accepted For a Car Loan
Even if you’re having trouble obtaining a vehicle loan, there are 5 things you can do to boost your chances.
1. Consider Getting a Co-signer
If you can’t get an auto loan on your own, you might be able to do so if you have a co-signer.
A co-signer is someone who agrees to repay the loan if you are unable to, putting their own credit in jeopardy as much as yours.
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2. Make a Down Payment by Saving Money
The more money you save for an automobile down payment, the less cash you’ll require to borrow to acquire a vehicle.
When you start with a lower loan amount, your monthly payments will be more reasonable.
Some student loan lenders demand a down payment of at least 10% in order to qualify, while others only accept down payments of 10%.
Before you begin looking around, make every effort to save as much money as possible.
3. Establish Your Credit History
It might take months to build a good credit history.
Fortunately, financial institutions provide services like credit-building loans and secured credit cards to assist people in developing or regaining their credit.
Payments on these loans are usually reported to the three major consumer credit bureaus each month (but double-check with your lender).
You can build a habit of paying on time and establish a pattern of excellent borrowing, which will improve your chances of being accepted for an auto loan in the future.
It is possible to increase your credit score by becoming an authorized user on someone else’s credit card.
Because they may be reported to the credit bureaus for you, it’s more likely that your usage of the card will be noticed.
Check with the credit card company before becoming an authorized user to ensure you are aware of it.
It’s worth noting that even if an account is reported for authorized users, it can only help you if the cardholder pays on time and stays considerably below their credit limit.
4. Establish a Dependable Revenue Source
Even if you have good credit, a lender is unlikely to give you money if you can’t afford it.
Lenders want to make sure that you will be able to pay back your loan on time and also fulfill all of your other financial obligations.
5. Get Good Grades To Increase The Trust
If you keep your grades up, one lender may provide discounted interest rates.
Other lenders, on the other hand, may look at your GPA when evaluating your loan application.
If you’re shopping for a vehicle, studying could save you money.
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Frequently Asked Questions
Marie got her journalism degree from the University of California and is an award-winning financial journalist, who’s responsible for collecting and analyzing information concerning students and young adults within the world of finance.
Marie has spent her career with more than 5 years writing for unique media outlets like Yahoo finance, GoBankingRates, and CNBC. She also teaches them how to plan strategically to get out of loan debts easily.
Her goal is to educate students about the different stages in life that involve finances so they can get their money’s worth.