A lot of requirements for traditional loans do not apply to student car loans, making them an oddity among auto loans. Student loans are first time car loans, which mean that for this sort of car loan no credit has yet been built and so is not required. Therefore, in order to ensure that a loan will be repaid, a cosigner is needed to back up the loan. If you’re looking to buy a car for the first time, this guide will teach you what you need to know about getting a student car loan with a cosigner.
Learn the Terms
If you’ve never taken out a loan before, a lot of the words being used here may be unclear. An auto loan, of course, is a sum of money which you borrow to pay for a car. This is called financing a car. You are then expected to make smaller monthly payments to the lender (the person or company which loaned you the money) until your debt is repaid with interest. Interest is a percentage of the total loan amount which is added to that amount and which you must also pay back; this is how lenders make money. Other important terms are credit, which is basically a representation of your prior financial responsibility and is built up or torn down by making or not making payments on time; and loan term, which is the amount of time over which you agree to repay your loan.
How Student Car Loans Work
Student car loans are essentially similar to any other sort of loan. You, the student, submit a loan application to a lender. If approved, you will be able to purchase a car and then begin making monthly payments to the lender until the loan plus interest is repaid. Student car loans are different from other car loans in that you will need a cosigner in order to get the loan. The cosigner needs to be an adult with credit history. If you fail to make payments, your credit will be affected, but responsibility for repayment will fall to your cosigner.
Why Cosigners Are Needed
Cosigners offer security to the lenders. Since students do not yet have a credit history, lenders have no idea whether or not they can be expected to be financially responsible and thus it would be a huge risk to give any student a loan. Cosigners promise to be the responsible party should the student fail, so lenders are risking much less.
The Next Step
If you’d like to get a student car loan, the car dealership from which you plan on purchasing your vehicle is a good place to begin looking for a lender. Dealerships can provide recommendations and possibly several different choices to compare when searching for a loan. You can also visit banks, if you have or your cosigner has a checking account. Since students have no credit history, it is unlikely that one would be able to find a student car loan online.