Getting a car loan while you are a college student can be a challenge. For example, students have tuition and fees to pay, and books to buy. Your time is limited for working part-time to earn money if you want to keep up with your classes and achieve a high GPA. The trade-off is difficult, however, there are available financial options that will help you get your loan and get behind the wheel.
As a student, you probably lack the necessary credit to get a traditional auto loan, but don’t give up before you get started! Many options are available to students who lack the credit history often required for a car loan. You just need to know where to look.
Student Car Loan Options
- Banks and Financial Institutions
Some financial institutions offer car loans specifically for college students. These institutions consider the student’s limitations when they review the student’s application. For example, a full-time student cannot be expected to work full-time hours. Therefore, the student’s income is likely based in part-time and temporary work, but being a part-time employee does not disqualify the student from getting a loan!
Banks and financial institutions that offer specialized car loans for students generally offer a break on the interest rates for students. For example, a bank may offer a 0.5 percent interest rate decrease for as long as the student attends classes. If the student is also a customer of the bank, he may receive additional rate discounts.
Banks that offers specialized car loans for students may also extend the terms of the loan for lower payments. For example, the financial institution may provide the student with an extra six months to one year beyond the standard terms of the loan to lower payments over the life of the loan recipient.
The financial institution may waive origination and transaction fees on car loans for students, as well. Research your bank and the options they offer for student auto loans. Note that many banks that offer student auto loans set a minimum amount for the loan. For instance, the total you borrow for your loan must be for $5,000 or more. Check with your financial institutions to find out if they offer such a program for students.
- Auto Manufacturers
Auto manufacturers often provide financing options for students. For example, the Ford College Purchase Program offers students a $500 incentive, along with several financing options for the purchase of a Ford or Lincoln. Research the various auto manufactures and explore the financing options offered to students.
- Online Loan Services
Certain online loan services, such as Valley Auto Loans, will match students with lenders to provide them with the car loan they need. Even if you have no credit or a poor credit history, Valley Auto Loans can find a lender who will work with you to obtain approval for your student car loan.
Student Car Loan Interest Rates
Do your research to find out the interest rates for loans from different lenders. If you are a student, and you are applying for your first car loan, you will probably pay a higher interest rate than an established consumer with a good credit history. However, your interest rate should not exceed the norm by much. For example, if interest rates for a conventional car loan are an average of 8 percent, you should not accept an offer from a lender for a 15 percent rate loan. Though you should not pay an exorbitant interest rate, you will pay a bit more while you are establishing your credit.
Generally, banks and financial institutions that offer student auto loans require that the applicant prove that she is a full-time or part-time student of a college, university, trade or technical school. Students in graduate and post-graduate programs may also qualify. Some programs also invite recent graduates to apply.
Improve Your Chances
You can do a few things to improve your chances of qualifying for a car loan. You can get a co-signer, or you can save up for a sizable down-payment.
If your parents agree, you can ask them to co-sign for a car loan. Not only will you improve your chances of obtaining approval for the loan, but your interest rates will likely be much lower than if you qualify without a co-signer. If you have a friend or family member in lieu of your parents, you can ask them instead. However, when someone agrees to co-sign for your loan, he assumes the responsibility as if he were taking out the loan himself. This means that the loan payments will count against his debt-to-income ratio if he applies for a loan while you are making the payments on the loan.
If something happens and you are unable to make payments on the co-signed loan, the co-signer becomes responsible for the payments. Co-signing a loan for someone should not be taken lightly. However, using a co-signer is one way to build your credit and obtain a loan while you are still in school.
Though it can be difficult to save money as a student, if you can budget your finances in a way that allows you to save a significant down-payment for your car, your chances of getting approved for an auto loan when you are in school are greatly improved. The more of a down-payment you can save, the less you will need to finance with the loan. However, you will still need to prove to the lender that you will be able to make the monthly payments, so you will need to demonstrate your ability to pay by proving your income.
Most lenders who write loans to students require that the student can prove at least $1,500 per month in steady income. Though most lenders will consider the student’s pre-tax income for this limit, the borrower still needs to show that his debt-to-income ratio will accommodate the monthly payments.
For the lender to consider your income as valid, your income must be verifiable. Many students work for tips and cash, and find it hard to provide proof of income. You will likely need to provide the lender with tax returns or W-2s from your employer to qualify for an auto loan. However, some lenders will work with students who hold non-traditional jobs.
The only true way to know if you will qualify for a student car loan is to apply. If you apply through Valley Auto Loans, we will work to find the perfect lender for your budget and situation. If you are a full-time student with a gross income of at least $1,500 per month, we can match you with a lender to finance your next car loan.
Calculate Your Limits
Before applying for your car loan, figure out how much you can afford for your monthly payments. Next, find a car loan calculator and estimate the total amount you can spend based on your desired monthly payment. Several free car loan calculators are available on the Web. Just input your desired monthly payment, and then click the button. The tool provides you with the total amount of the loan you can borrow and stay within your payment limits. It’s good to know how much you can afford before discussing loans or shopping for a car.
Understand the Loan Terms
When you are matched with a lender and approved for a loan, you must make sure you understand the terms of the loan, including the length of the loan, in addition to the interest rates. You will be making payments on the loan for years to come. You need to take into consideration what will happen to your budget when your student loan payments kick in. After all, the last thing you need as you begin your new career is excessive debt.
Student Loans and Car Loans
If you have borrowed student loan funds to finance your education, you may be able to use part of the loan to finance your car. Most student loans allow for transportation charges, however, not all do. Read the fine print and ask your lender if there are any stipulations on your loan that prevent you from using borrowed funds for the purchase of a car.
However, when you graduate, your student loans are placed on a 10 year repayment plan. Student loans cannot be written off with a bankruptcy and you will have to pay back every penny of the loan to the federal government. Now, consider purchasing a car with some of the loan money. Chances are that by the time the loan is paid off – in 10 or more years – you probably will not be driving the car you purchased with the loan funds. In fact, you will likely be making payments for another car.
There is no need to use your student loan funds to purchase a car while you are still in school. You can obtain an easy auto loan to cover the purchase. Complete a Valley Auto Loans application on the site and allow us to find a lender that will work with you. Our lenders meet you where you are – in your current situation. They understand the challenges you face as a student, and they can help.
Student Car Loan Preparation
- Bank Account
Before you apply for a car loan, open a checking or savings account, if you don’t yet have one. Your bank statements will be required for loan approval when you are matched with a lender. Additionally, your lender may offer automatic payments that you can set up to debit directly from your account, if you prefer.
- Proof of Student Status
The lender will also need to see proof of your status as a student. You don’t necessarily need to be enrolled full-time unless stipulated by the terms of the loan. However, you will need to prove that you are an active student of an approved institution. Generally, undergraduate and graduate students attending colleges and universities will qualify, but students attending trade and technical schools can also qualify. Even if you are attending trade school to obtain certification for your job, you may be able to qualify for an auto loan as a student.
- Proof of Income
As a student, you will need to show that you can make the monthly payments on the loan. To do so, you need to prove that your income is at least $1,500 gross – meaning before taxes. If you have a non-traditional job, such as a waiter or bartender, and a majority of your income comes from tips, you may be able to use your bank statements as supplemental proof of income if you can show that you regularly deposit your tips.
If you are a W-2 employee, your W-2 statements will sufficiently prove your income. Note that your W-2s must reflect the minimum income limits set by the lender.
- Proof of Alternative Income
If you do not have a job that will support payments for a car loan, you can apply for your school’s work-study program. Essentially, the college or university provides you with part-time employment, usually on campus, and you are paid as an employee for the hours you work. You may be assigned to work in the bookstore, or in another one of the campus facilities. You may be assigned to do office work for an administrator. No matter of the job you perform during your work-study time, you can use the money to make car payments, if you so choose.
If you receive income from any other source besides employment, you must provide the lender with proof of the additional income. For example, if you are on SSI for disability, you can use the monthly SSI payments as an income source when you apply for the loan. If you receive alimony or payment for a law suit settlement, these funds can also be considered as income when you apply for a vehicle loan.
- Co-signer and References
Obtaining a co-signer with good credit will dramatically increase your chances of qualifying for a car loan. Additionally, a co-signer with good credit will save you thousands because you will get a better interest rate than if you attempted to obtain financing on your own. Though co-signing an auto loan is a risk for the co-signer, your parents or family members may trust you enough to put their name on the dotted line to help you get the car you want.
Whether or not you use a co-signer for your loan, you will need to provide several references to the lender. Obtain the contact information for at least five references, and be sure to ask their permission to use them as a reference for your loan.
Remember Your Budget
When you are matched with a lender from Valley Auto Loans, the lender will provide you with the terms of the loan, including the life of the loan and amount of monthly payments. Before you sign the papers, work the payment schedule into your budget to ensure that you can make the monthly payments. Remember that you will also need to pay for insurance, gas, parking and maintenance for your vehicle.
Your First Investment
The car you purchase with your student auto loan will probably be your first major investment. This purchase will impact your credit history in a big way, so be sure to make your payments on time, every month. If you are late on payments, one or more of the credit reporting agencies is notified. Your credit rating suffers with each late or missed payment, and eventually, if payments are too far behind, the car can be repossessed.
Additionally, if you have a co-signer on the loan, late payments will also impact their credit rating. Only sign for and accept the loan if you are sure that you can make the payments over time. Remember that the car you select will need to last for the life of the loan or longer, so make your purchase wisely.
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