For many college goers, student car loans are the only way that they will be able to afford a reliable car during their school years. Getting a car loan is not always easy when you have college tuition to pay for. Banks and manufacturer financing offices are not always that welcoming to students with very little viable income and the potential for large college loans afterward. Through the last several years, many auto loan companies have begun working with college students to supply them with great terms of auto financing.
Online loan companies offer several options for students who are looking to purchase a good quality car. They will work with the student's current finances and offer terms such as low interest, pay after graduation or an extended pay period which keeps payments low. Student auto loans also give the student a little more room to maneuver when it comes to actually buying a car. Many institutions give the student a check for a specified amount that they can use toward the purchase of a car. This can be either through a dealer or a private individual. The student pays for the car themselves and then begins to pay back on the amount of the check that they were given.
Students often lack credit, the most important asset when getting a loan. That's why a cosigner is needed to get a student auto loan—no credit history is required, except by the cosigner. A cosigner is a person, usually a parent, who signs off on a loan as an assurance that the loan will be repaid. If the student fails to make payments, responsibility will fall to the cosigner instead. Because of this, it is important that the cosigner has a decent credit history. Lenders usually require a cosigner if a student has no credit, or bad credit, because it makes lending the money less of a risk.
Many websites provide a loan calculator that can help students determine how much they can afford. It will allow them to put in a loan rate, term of years and amount that they wish to borrow. With this information, the calculator can provide the student with different loan scenarios important to determine what amount is reasonable.
Calculating the loan is important because it gives students a visual representation of what the numbers will look like. Being able to see the numbers will make them real and allow you to make a good decision about how much can be borrow. Use our Car Loan Calculator to calculate your monthly loan payments.
Search for different lenders that provide car loans for students. Using the Internet will help narrow the field of prospective finance companies to those who work with specific types of students. Finding the right company is important because it will make the borrowing process specific to the student.
Find out if your bank or credit union might be willing to give you a few perks when you get a loan. See if there are options for lower interest car loans or if there might be a repayment plan that is longer. This would be a good one because most students are not able to work full time while attending college. You might even be able to get more rate reductions if your parents have good credit and are willing to cosign for you.
To best account for possible reductions in loan costs, and options that will give you more freedom in how to pay your loans in the future, consider the following:
- Find out about eligibility. Lenders offering these kinds of loans often include specific eligibility requirements (that are not always advertised). The best way to find out is to apply and see whether the lender will approve your loan.
- Check out interest rates. Before you sign on a loan, you need to know if you are comfortable with the APR or interest rate offered. For unsecured student auto loans, the interest rates will generally be pretty high. Take a look and consider the eventual cost before going further.
- See how some basic changes will affect the loan. Ask about how a larger down payment or higher monthly payments could help with getting better rates or approving a loan.
- Plan out payments. Since the terms of these loans are generally fixed rate terms, the borrower can plan out their payments down to the penny. This helps a lot in budgeting and making sure the income can handle the monthly payments that are expected.
- See what kind of interest rates you can get >>
When the student finds several loan offers, the terms and rates should be compared in order to determine the best deal. Looking for differences in how the loan is structured, the term of years and the type of rate will help determine which loan offer is right for the student. The loan should reflect the student's ability to pay and be reasonable and flexible.
Buying a car as a graduating student is one of the many steps necessary to establish a good credit history. The student should review all offers for financing carefully and make sure that the terms are reasonable and in keeping with what the student can truly afford.
Once you find a lender, fill out their student loan application. Depending on who the lender is, you may be required to show them that you're really enrolled in school. If you don't have a job yet, don't be afraid of applying for the loan. A few lenders may accept school funding as part of your income.
Ways to Minimize Loan Costs
There are some factors that students may take into account to help them cut down on possible car loan costs.
- Stick with economy vehicle types. Some auto experts have identified popular car models that students often select for economy and easier insurance and financing. Research indicates that some of these include the Honda Fit, Nissan Versa, and Ford Focus models, just to name a few.
- Look into your school's resources. Students at some colleges and universities can actually attract specific lender deals that will accommodate their own financial situation. Even if that's not the case, your school or college may have good resources that will help find the lenders you need to get decent auto financing as a student.
- Build your credit if possible. Though students generally are challenged in auto financing because of a lack of credit, some strategies enable a younger driver to build credit fairly quickly. For instance, taking out a credit card and paying off the balance monthly will quickly ramp up your credit score. However, that's not always a good option for younger consumers who may not have a mature outlook on spending versus saving; or how to responsibly use credit.
- Look for lending deals where refinancing is possible. Another thing students do is take out financing deals that can be refinanced at a later date, when the individual's credit and driving history have improved. Make sure your loan agreements include the possibility of refinancing, and you can search for these deals later on down the road.
- Throw everything you have at a loan for upfront payment. Another thing that financial experts will tell student drivers is that any and all assets can provide a better situation for making sure the driver can afford the auto loans they take out. Even selling minor possessions or doing other informal borrowing can help out a lot to place a larger down payment and avoid higher interest on the loan.
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Take a look at these simple tips on how you can close your loan as soon as possible.
- Use amortization schedules online, which you can use to calculate how much you will have to pay for your particular car loan to close it earlier.
- Get in touch with debt consolidation companies. If you have multiple loans like credit card loans, personal loans and student car loans, you can combine them under a single umbrella. This will reduce your interest rate, get you a single loan payment to make every month and reduce the amount of that loan payment.
- Refinance your car loan. After you have completed your education, you can get in touch with the lending company and ask them to refinance your loans with a longer payment period. However, this will automatically result in you making a larger payment towards the same car.
- Tap your friends and family. It's not going to be easy, but paying off all loans as fast as possible is paramount. If you have to ask friends and family for an interest free loan, do so. You can pay them back when you get a good job.
- Take advantage of tax benefits. As a student, you become eligible for a $2,500 tax benefit that will help you in paying off your student loans. Get in touch with a good tax adviser who can help you out here.
- Invest in a 401K or RRSP plan right away. It will be very difficult, but it definitely will help you in the future. If at any time you cannot afford to pay your monthly payments, you can take loans on your 401K or RRSP plans and then use them to reduce your debt.
- Pay towards the principle. This will easily reduce your monthly payments and the time of your loan. In order to make this possible, you will have to work more. But whatever windfall of cash you do have, put it in checks and then send it to the loan company clearly marked as "PRINCIPLE ONLY." This will prevent them from putting it towards next month's payment, and you can shorten the term of your car loan.