Getting a Car Loan As a College Student: How to Go About It

A car loan is a closed-end loan. You borrow money to finance your car purchase then repay the money with interest. The loan term can be long or short. A long loan term can translate to lower monthly payments while a short loan term can mean a higher monthly payment.

It’s worth mentioning that an auto loan is a secured loan, which means your car is the collateral. If you default on payments, the lender is legally allowed to repossess your car to clear the outstanding debt. So, make sure you can afford the monthly payments, as well as your other expenses, before applying for a car loan. 

Here’s how to increase your chances of getting a car loan:

Save for a down payment

A down payment is money you pay upfront for the car. If you have more money saved for a down payment, you won’t need to borrow a lot of money to purchase the car. And because you’ll start out with a smaller loan, your monthly payments will be more affordable. Some car loan lenders require you to pay a fixed amount as a minimum down payment, between 10% to 25% of the total price. So, save as much money as you possibly can before you start shopping around.

Build your credit

Building a strong credit history takes time. Fortunately, financial products like secured credit cards and credit-builder loans can help students establish or rebuild their credit. The loan payments for these loans are usually reported to the major consumer credit bureaus monthly. 

When you pay back the loan consistently and on time, you create a pattern of positive borrowing, improving your chances of getting auto loans later on. You can also build your credit by becoming an authorized user on someone else’s credit card. Some credit card issuers send reports to credit bureaus for authorized users.

Get a Co-Signer

If you want to get approved for a car loan without an established credit history, get a co-signer. A co-signer repays the loan on your behalf when you’re unable to. They increase the chances of your loan getting approved because the lender knows that the loan will be repaid one way or another. 

A co-signer must have good credit and a steady job and be willing to vouch for you. It can be a parent, a close family friend, or another person. But remember that late payments or defaults can hurt your co-signer’s credit–and yours–so talk to the person about the risks and benefits involved before proceeding.

If you’re studying away from home or you’re working part time but don’t have your own set of wheels, it can be frustrating. Nothing compares to the independence a car provides. Many students finance auto purchases with car loans, and this may be your only option if you don’t receive financial help from your parents.

Securing your first auto loan may be difficult, but it’s not impossible. And once you’re a car owner, you can apply for title loans whenever you need cash urgently.

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