When you’re a student, you frequently have a lot of financial duties to manage. Many students are responsible for covering their costs, which include tuition, books, accommodation, meals, and other necessities of life. However, having a means of mobility is also essential, particularly if you don’t live close enough to your school’s campus to walk or use public transportation.
It can be considerably more difficult to manage without a dependable mode of transportation if you work while going to school. But most college students lack the funds necessary to own a vehicle.
Those who have a strong credit history and the capacity to make monthly payments on schedule may choose to take out a loan for a vehicle. You might be unsure if you can get a car loan, especially if you’re in school. You might not have much credit history as a young adult, and some college students may already be student loan borrowers.
Fortunately, many lenders provide vehicle loans for students because they are aware of the difficulties associated with going to college. Recent high school graduates, as well as international students, may be eligible for these specialized loan programs that are tailored to the special needs of college students.
You can decide whether to explore taking out a loan for a vehicle and what it takes to qualify by learning more about student car loans and how car loans usually function.
A Comparison of Auto Loans
It’s beneficial to comprehend how this form of loan operates and what to anticipate when entering a borrowing agreement before you choose whether to take out a loan to get a vehicle. In a closed-end loan like a vehicle loan, the lender gives the borrower a certain sum of money. The borrower agrees to pay the lender the loan amount plus interest in equal monthly payments.
Many lenders still want borrowers to put down some of the purchase price as down payment even though the car the borrower buys acts as collateral to secure the car loan.
The down payment you make affects the monthly payment you’ll be required to make to repay the loan. The cost of the vehicle and the interest rate you qualify for are other considerations. Your credit history, employment situation, and other financial considerations can affect the interest rate on a car loan.
Even while some banks provide variable rates, the majority of borrowers select fixed interest rates for car loans. A variable interest rate might change over the period depending on the federal funds rate and the lender’s financial position.
Throughout the duration of the loan, the payment remains constant with a set interest rate. The payment amount can increase with a variable interest rate, and you can end up paying more in interest than you anticipated when you took out the loan.
The normal period of a car loan is between two and six years. While some lenders charge fees for early payoffs, others don’t object if consumers pay off their loans early. Lower monthly payments are the result of a longer loan period.
Car leases vs. loans
When researching auto loans, you could come across information on leasing a vehicle. Both are good choices, while renting may be more challenging for students. With a car lease, you can drive a brand-new vehicle from a dealership in exchange for a set monthly payment. At the conclusion of the lease term, you won’t, however, own the vehicle. Instead, you can purchase the vehicle outright for a higher price or just return it to the dealer.
A stable income and good to exceptional credit are requirements for leasing a car. Experian data shows that lessees had an average credit score of 733 in the third quarter of 2020. With FICO, a score of 670 or more falls into the “good” category. Even though you don’t own the car at the end of the lease, leasing a car still appears on your credit report.
If the terms of the lease allow for purchase, you can take out a car loan to cover the outstanding sum at the conclusion of the lease and keep the vehicle. One of the primary benefits of leasing a car is the decreased monthly payment. A financial expert considers the amount of depreciation the vehicle will experience during the lease term when figuring out the monthly payments for a leased vehicle. During the length of the lease agreement, you will make payments toward that value, leaving the residual value at the end.
Why Student Car Loans Are Difficult
The concept of financial independence is being introduced to many college students for the first time. They might therefore lack the credit history or consistent source of income necessary to be approved for a car loan.
When making loans, lenders must protect themselves and their interests, so they carefully review applicants to make sure borrowers will be able to pay back the money they borrow. Finding student auto loans might be difficult for a variety of reasons, including the ones listed below:
No or Bad Credit
Lenders consider credit history when deciding whether a borrower is eligible for credit. You could not have any history when a bank evaluates if your financial circumstances will allow you to repay the loan if you’ve never had a credit card or loan. Prior to graduating, when you must begin repaying your student loans, there is little impact on your credit.
Some students have trouble managing their money, rack up credit card debt, or miss payments. Because of these behaviors, you may not qualify for a car loan. To avoid damaging your credit history when you receive your first credit card, it’s critical to make wise financial decisions.
You might still be eligible for a loan even with bad or no credit, but the interest rate will likely be higher. You should evaluate interest rates and pick a loan that fits your financial circumstances because the interest rate decides how much you must pay each month. Consider buying a less expensive car if you need a car but can only get financing at a higher interest rate in order to keep your monthly payment manageable.
The amount of money a student can borrow to buy a car may have a limit set by the lender. You can therefore be limited to buying a used car that is priced below the loan’s limits.
Borrowing for a student auto loan is frequently limited to no more than $15,000 or $20,000 by lenders who impose lending limitations. You could feel constrained in the kind of car you can purchase if you don’t have much money to put down.
When evaluating loan applications, lenders also consider their income to see if it can cover the monthly payment. The qualification process also takes into account employment history.
If you’re working part-time while going to school full-time, your income level may be low, but having a consistent employment might demonstrate to a lender that you’re employable and might stay in your current position. If you switch jobs frequently or have started a new job, getting a car loan could be more challenging.
Additional Costs Associated with Owning a Vehicle
Think about the extra costs you’ll face with a car while determining your financial status and if you can afford one. A further expense is the requirement for drivers to carry auto insurance in every state. Additionally, you can spend extra for your policy because young drivers have higher auto insurance prices.
Gas, routine maintenance, repairs, and parking are additional expenses related to car ownership. Although choosing a fuel-efficient or hybrid vehicle will help you keep your gas prices in check, you’ll still have to fork over cash each time you fill up. The price of repairs varies by make and model, but on general, foreign cars are more expensive to fix than domestic ones. Additionally, you might be required to pay for a parking pass depending on where you attend school.
Advice on Student Auto Loans
You don’t have to give up on your goal of getting a car if you can’t get a loan on your own while attending school. As an alternative, you can think about having a co-signer or attempting to raise your credit.
Employ a Co-Signer
An individual who co-signs for your loan serves as a co-borrower. You might be able to get an auto loan if you can locate a person with good credit who is ready to assume the financial responsibility, like a parent or another family member.
Better Your Credit
You can also be eligible if you work to improve your credit. If you have debt that needs to be paid off, make extra payments every month to reduce the total and hasten the process.
Get a credit card with a low limit and use it for regular purchases if you currently have no credit history. You can demonstrate that you’re a responsible borrower by making purchases on your credit card and paying the debt in full each month.
Become a Registered User
Using someone else’s credit card as an authorized user is an additional choice. Authorized users may be disclosed to credit reporting agencies by some credit card providers, and the cardholder’s spending patterns may have a favorable effect on your credit. You must make sure that the credit card company reports authorized users before proceeding down this path.
Put aside cash for a down payment.
A lender may be less willing to take a chance on you if you have more money down. To save more money for a down payment, try to work as much as you can while maintaining your academic achievement. If you need to make some extra money, you might also think about taking on side tasks like delivering food and groceries or driving passengers.
Organize Your Personal Budget
Establishing and adhering to a budget is essential when purchasing a vehicle. High-end models with the newest features can be very alluring, but you don’t want to increase your debt beyond what you can manage.
After paying for all of your other living expenditures, estimate how much you can afford to pay each month, and then choose the loan amount that satisfies that criteria. When crunching the figures, don’t forget to include the down payment to get an accurate estimate.
Maintain your grades
Some lenders offer incentives to borrowers who maintain strong grades while in college. By maintaining good grades and demonstrating your level of responsibility and commitment to your studies, you may be able to receive a loan with a lower interest rate or a discount.
Take a Job
You can appear more solid and appeal to a lender who would consider you for a car loan by having a consistent source of income. It is more difficult to provide evidence that you can afford the monthly payment if you are not working while enrolled in school. You can demonstrate your financial stability for a loan even with a part-time employment.
When you have unpaid student loans and want to get a student auto loan, you might think about consolidating. Putting all of your debts into one account and making one payment per month to pay off the balance is known as debt consolidation. You should verify with your lender(s) to see if your debt would qualify as some lenders restrict debt consolidation alternatives based on the sort of debt you have.
Using a Student Loan to Buy a Car
You might question if you can use the money from your student loans to buy a car if you take them out to cover your school costs. This choice is based on the terms of your student loans and how the lender specifies how the money will be used. You might be eligible to use the funds to purchase a car if your college or institution counts transportation expenses as part of the overall cost of attendance.
To find out if you can purchase a car using the money from your student loans, it is best to speak with your loan provider or the financial aid office at your school. The last thing you need to be concerned about is paying a fine for misusing borrowed money.
Locations for Student Auto Loans
There are numerous lenders that provide student auto loans, and each has a set of prerequisites and regulations for applicants. There may be possibilities for student loans from local banks, credit unions, online lenders, and big banks. The best course of action to take to find a competitive rate and conditions that work with your financial circumstances is to shop around.
Find lenders who specialize in student vehicle loans to start your search. When students buy cars, they might provide discounts, preferential financing rates, or other alluring features. You might also wish to check out the offerings of the credit union if your school has one as an affiliate. If you’re purchasing your first automobile on your own without the assistance of other lenders, some lenders may provide unique rates and terms for first-time purchasers that may apply to your case.
Automobile producers might potentially offer discounts and incentives to undergraduates and recent grads. Qualified purchasers may receive those special offers from dealerships.
These, however, usually only apply to brand-new models, which may not be within a student’s means. Furthermore, loans from dealerships could cost more than loans from lenders who focus on student auto loans.
International Student Loans
For overseas students who are residing in the United States and enrolling in a university or college, getting approved for a car loan can be more difficult. If you can demonstrate your ability to repay the loan while you are in the nation on a student visa or another sort of temporary visa, you might be eligible. Some lenders will cooperate with students who have green cards and are residents of the United States on TN, L-1, F-1, H-1B, and OPT visas.
Lenders may need to use alternative methods to confirm the credit history of international students because they lack Social Security numbers. Lenders may check your credit history in your former country of residence to make sure you don’t have any bankruptcies or debts that are currently being collected.
The loan’s payback period should also be taken into account when you’re thinking about applying for one. If you are in the United States on a visa that has an expiration date, a lender is unlikely to approve you for a loan with a lengthy payback period that exceeds the duration of your stay. An foreign student can use a co-signer to be approved for a loan, but some lenders demand that co-signers have citizenship or permanent status in the United States.
You must obtain a driver’s license in the same state as your place of study as well as a car insurance coverage before you may own a vehicle.
Looking for Student Car Loans
If you’re prepared to move through with your car purchase, you may start comparing student car loans. Compared to traditional lenders with physical premises and higher overhead costs, online lenders frequently offer rates and services that are more competitive.
This choice, though, can be more reasonable if you discover a bank or credit union that has special student rates. Take a closer look at a few of the best lenders that provide students with affordable vehicle loan options:
Student Auto Loans from Boro
If you don’t want to rely on a co-signer to qualify, Boro Auto Loans for Students is an excellent lender to choose. Your college major and current grade point average are a few things that this company takes into account. Even if your credit history isn’t ideal, you might qualify if you’re entering a sector that has the potential to be financially rewarding and getting good grades in school.
One thing to keep in mind while applying for a loan through Boro is that a down payment of 25% to 35% of the car’s purchase price is required. Although there isn’t a precise limit on how much you can borrow from the organization, the actual percentage depends on the loan amount. If they are eligible, international students may also benefit from the program.
In 32 of the country’s 50 states, Boro provides auto loans to students. Depending on the borrower’s down payment and financial status, loan terms and the starting rate, which starts at 6% APR, can change.
The ideal loan choice for people who wish to purchase a car without a co-signer may be Stilt. International students have access to personal loan alternatives from this company because it provides personal loans to both residents and non-residents. Instead than placing a great importance on applicants’ credit scores, loan underwriters consider students’ past financial behavior, education level, and GPA when evaluating applications. One of the few lenders, Stilt, forbids co-signers.
The highest credit amount offered by this business is $35,000 Typically, the interest rates range from 7.99% to 15.99% APR. Although these rates are significantly more than what you could be eligible for through another lender, this business frequently approves people for auto loans when they might not be authorized elsewhere.
MyAutoloan can be a lender you can trust to finance your car purchase if you don’t have outstanding credit. Financing for clients with credit ratings of at least 550 is the company’s area of expertise. You need to earn at least $24,000 a year and have no open bankruptcies in order to submit an application for a loan. Applicants must also be at least 18 years old and permanent residents of the United States or citizens.
This lender’s beginning rate is 2.15%, which is a very competitive rate for auto loans. If you are eligible, you might be able to get a loan there with a cheaper monthly payment than you would from a different lender.
Despite not being a lender itself, LendingTree can connect students with a variety of lenders, making it simple to compare possibilities right away. LendingTree streamlines the comparing process and provides connections to each lender so you may go straight to the application page on a lender’s website through relationships with various banks, credit unions, and online lenders. You’ll likely need a co-signer because most lenders who engage with the company demand applicants have credit scores of 670 or better.
Students can choose which loan best suits their needs because they have access to various lenders through this option. Although credit history and other factors will affect the rate for which you can qualify, the beginning rate is 1% APR. Additionally, LendingTree does not have a maximum loan amount; however, individual lenders may impose a limit on the amount that students may borrow.
SuperMoney Marketplace for Auto Purchase Loans
Another resource for college students who are thinking about getting a car loan is the SuperMoney Auto Purchase Loans Marketplace. In that it links customers with lenders that might provide them with competitive rates and flexible loan terms, it is comparable to LendingTree. A documented source of income and a fair to good credit score are requirements for applicants. Being an American citizen or permanent resident, as well as being 18 years old, are additional prerequisites.
This marketplace’s minimum credit score demand is 600, which is lower than the standards set by other lenders. The interest rate varies depending on the lender, and it is affected by your credit history, as well as the amount of money you have to put down.