University Students: Getting Car Finance, Is It Possible?

University students can get car finance, but it may be challenging. Students often have limited or no credit history, and their income may be inconsistent or low, which can make it difficult to secure car finance. However, some lenders do offer car finance deals specifically designed for students, and there are steps students can take to improve their chances of getting approved.

Getting a car loan as a student with no credit history

Getting a car as a university student can be life-changing, offering freedom and flexibility. However, it can be challenging for students to get car finance due to their transient lifestyles, uncertain future employment prospects, and, often, limited or no credit history. Despite this, it is still possible for students to get a car loan. Here are some things to consider and steps to take if you're a student with no credit history looking to get a car loan.

Understanding car finance

Car finance helps you purchase a second-hand car without paying all the money upfront. Instead, you pay in smaller amounts over time, making buying a car more affordable. There are three common types of car finance:

• Unsecured Personal Loan (UPL): You borrow a lump sum to buy the car and make monthly repayments.
• Hire Purchase (HP): You borrow the cost of the car, minus any deposit, and make fixed monthly payments. After all payments and a final fee, the car is yours.
• Personal Contract Purchase (PCP): You borrow the cost of the car's depreciation, so monthly payments are smaller. At the end, you can make a large final payment to buy the car.

Challenges of getting a car loan as a student

As a student, you may face several challenges when trying to get a car loan:

• Limited credit history: Most lenders will check your credit history, and if you don't have enough credit or a consistent payment history, they may be less willing to approve your application.
• Income constraints: Lenders will also consider your income when evaluating your ability to make repayments. As a student, your income may be inconsistent or come primarily from part-time jobs, scholarships, or financial aid, which can impact the loan amount and interest rates offered.
• Student status: Lenders may view students as higher-risk due to their transient lifestyles and uncertain future employment. This can affect the terms and conditions of the car finance agreement.

Improving your chances of getting approved

Even with these challenges, there are several things you can do to improve your chances of getting approved for a car loan as a student:

• Build a credit history: Check your credit score regularly and fix any mistakes. Get on the electoral roll, pay your bills on time, and consider getting a credit-builder loan or a secured credit card to establish a pattern of positive borrowing.
• Save for a down payment: The more you can save for a down payment, the less you'll need to borrow, and the more affordable your monthly payments will be.
• Secure a steady income source: Lenders want to see that you have enough income to repay your loan on time, so consider getting a part-time job if possible.
• Consider a co-signer or guarantor: If you're unable to qualify for a loan on your own, you may be able to secure one with a co-signer or guarantor. This is someone who agrees to repay the loan if you're unable to and can improve your approval odds, especially if they have a good credit score and reliable income.

Tips for getting approved

• Work out your budget: Calculate your monthly income and expenses to determine how much you can afford to spend on car finance. Don't forget to include running costs like maintenance, tax, insurance, fuel, and parking.
• Use a finance calculator: An online car finance calculator can help you see what your monthly payments might look like and figure out what you can afford.
• Compare lenders and finance packages: Be sure to compare interest rates and finance packages to find the most suitable deal for your budget. Don't rush your decision, and get advice if you're unsure.

In summary, while getting a car loan as a student with no credit history can be challenging, it is possible. By building a credit history, saving for a down payment, securing a steady income, and considering a co-signer or guarantor, you can improve your chances of getting approved. Additionally, working out your budget, using a finance calculator, and comparing lenders and finance packages can help you make an informed decision and increase your chances of getting the car you need.

How to improve your chances of getting a car loan as a student

Getting a car loan as a student can be challenging, but there are ways to improve your chances of approval. Here are some tips to increase your likelihood of getting a car loan as a student:

Establish a Reliable Income Source

Even a part-time job can demonstrate to lenders that you are capable of making regular payments. Lenders want to see that you have a steady income to repay your loan on time, so consider taking on a part-time job if possible.

Build a Good Credit History

Lenders will assess your creditworthiness, so it's important to establish a positive credit history. You can do this by getting a credit card and using it responsibly, paying your bills on time, and having a mobile phone contract in your name. Check your credit score regularly and fix any errors, and consider becoming an authorised user on someone else's credit card to benefit from their positive credit history.

Save for a Down Payment

The larger your down payment, the better your chances of getting approved for a car loan. A substantial down payment reduces the amount you need to borrow, making your monthly payments more affordable. It also demonstrates your financial commitment and responsibility to lenders.

Choose a Cheaper Car

Opting for a more affordable car can increase your chances of loan approval. A less expensive vehicle will result in a smaller loan amount, and lenders may perceive you as a lower risk.

Get a Co-Signer or Guarantor

If you are unable to qualify for a car loan on your own, consider getting a co-signer or guarantor. This is typically a trusted friend or family member with a strong credit score, steady income, or longer employment history who agrees to take responsibility for the loan if you default.

Shop Around for Lenders

Not all lenders have the same requirements and interest rates. Compare different lenders and their criteria to find the best deal for your circumstances. Some lenders may offer special loan programs for students or have more flexible eligibility requirements, such as low or no credit score mandates.

Maintain Good Grades

Some lenders consider your GPA when reviewing your loan application or offer perks like lower interest rates or discounts for good grades. So, hitting the books can literally pay off!

Check for Student Discounts

Some lenders and car manufacturers offer discounted car loans or special car-buying deals specifically for students. These deals may be dependent on your GPA or limited to certain vehicle models, but they are worth investigating.

Use a Finance Calculator

An online car finance calculator can help you understand the loan process and determine what monthly payments you can afford. This tool allows you to input different loan terms and amounts to find the most suitable option for your budget.

While getting a car loan as a student can be challenging, following these tips can significantly improve your chances of approval. Remember to do your research, understand your financial situation, and make informed decisions about taking on a car loan.

The challenges of getting a car loan as a student

Getting a car loan as a student can be challenging due to several factors. Firstly, students often have limited or no credit history, which makes it difficult for lenders to assess their creditworthiness. This can be a significant roadblock, as lenders typically rely on credit scores and history to determine an applicant's ability to repay a loan. Without a strong credit profile, students may struggle to secure financing.

Additionally, students may face income constraints, with their income primarily coming from part-time jobs, scholarships, or financial aid. Lenders consider this when evaluating loan applications, and limited income can impact the loan amount and interest rates offered. Students' transient lifestyles and uncertain future employment prospects after graduation may also be perceived as higher risks by some lenders, leading to less favourable terms and conditions.

Another challenge is that students often have inconsistent or no income, which is a crucial factor in lenders' decision-making process. Without a steady source of income, it can be challenging for students to convince lenders of their ability to make regular loan payments.

Furthermore, students with limited credit history or bad credit may struggle to qualify for the lowest interest rates. Their lack of credit history or poor credit score may result in higher interest rates, making the loan more expensive overall.

Lastly, some lenders offering student car loans impose maximum loan amounts, typically ranging from $15,000 to $20,000. This restriction can limit the type of car a student can purchase, unless they have a substantial down payment saved up.

While it is possible for students to obtain car loans, they may need to take additional steps to improve their chances of approval, such as finding a co-signer or guarantor, building a credit history, or saving for a larger down payment.

Types of car finance deals for students

There are a few types of car finance deals available for students, although it can be challenging to get approved due to students' limited credit history and income. Here are some of the options:

Hire Purchase (HP)

Hire Purchase is a common type of car finance for students as it's easier to obtain even with a less-than-perfect credit history and low income. With HP, you essentially 'hire' the car until the final payment, when you have the option to own the vehicle outright. You'll split the total cost between the deposit and monthly repayments, with a small 'option to purchase' fee at the end of the term.

Personal Contract Purchase (PCP)

Personal Contract Purchase is another popular option for students due to its lower monthly fees. With PCP, you won't automatically own the car at the end of the term. Instead, you'll have the option to pay a fee based on an agreed future value to own it, return the car, or upgrade to another vehicle. However, PCP usually comes with a mileage limit and a higher final fee, hence the lower monthly payments.

Student Car Finance with a Guarantor

This option involves having a guarantor, typically a family member, who agrees to repay your car finance if you're unable to. A guarantor gives lenders confidence and can improve your chances of approval, especially if you have little financial experience. However, the guarantor must have a good credit score and be willing to make repayments if necessary.

Personal Loans

Personal loans from a bank or lender can be an alternative to traditional student car finance options. The loan amount and repayment terms will depend on your creditworthiness and the lender's criteria.

Dealerships with Student Car Loans

Some vehicle manufacturers offer special car-buying deals for students, although these are usually limited to specific models and not all manufacturers provide them. For example, GM College Appreciation offers $500 off certain new Chevrolet vehicles for current college students or recent graduates.

How to get a car loan as a student with bad credit

As a student with bad credit, you may face challenges in getting approved for a car loan. Lenders typically consider an applicant's credit history and income to determine their ability to repay a loan. However, there are steps you can take to improve your chances of securing a car loan.

Check Your Credit Score and Report

Firstly, it's important to understand your credit health by checking your credit score and reviewing your credit reports. If you have time before you need to purchase a car, work on improving your credit score by addressing any issues, such as paying down credit card balances or catching up on past-due payments.

Know Your Budget

Determine how much car you can afford by considering the monthly loan payment, title and registration fees, maintenance and repair costs, and miscellaneous expenses such as parking. It's crucial to ensure that you can afford the loan payments on top of your other financial obligations.

Save for a Down Payment

With bad credit, lenders may require a down payment, typically a minimum of 10% of the sales price. The larger the down payment, the better your chances of getting a lower interest rate and more favourable loan terms. Start by setting a savings goal and working towards it based on your ability to save.

Compare Auto Loan Offers

Explore different financing options, such as captive financing, dealer-arranged financing, banks, credit unions, and online lenders. Shop around and compare interest rates, loan terms, and eligibility requirements to find the best deal for your situation.

Consider a Co-signer

A co-signer is someone who agrees to apply for the loan with you and make the loan payments if you're unable to. Having a co-signer with a good credit score, strong credit history, and stable income can significantly improve your chances of getting approved and securing favourable loan terms. Choose a co-signer with whom you have a good relationship, such as a parent, sibling, or close friend.

Explore Student-Friendly Lenders

Some lenders and car manufacturers offer special deals and benefits for students. They may provide rate discounts, flexible approval requirements, or consider your GPA instead of a credit score.

Build Your Credit

Establishing a strong credit history takes time, but you can start by opening a student credit card or taking out a credit-builder loan. Making consistent on-time payments will help build a positive borrowing pattern and improve your creditworthiness.

Secure a Steady Income Source

Even if you have good credit, lenders will assess your ability to afford the loan repayments. Consider getting a part-time job or finding a source of regular income to demonstrate your financial stability.

Choose an Affordable Car

Opt for an affordable used car with high safety ratings and low maintenance and fuel costs. This will help keep your overall car ownership costs down and increase your chances of approval for a smaller loan amount.

Check with Your School

In some cases, financial institutions partner with schools to offer special loan programmes for students. Check with your school's financial aid office or website to see if they have any partnerships or recommendations for student car loans.

Be Prepared to Negotiate

When negotiating with a dealer, bring along a trusted adult or family member for support. Be confident and don't be afraid to walk away if the deal doesn't meet your expectations or budget.

Shop Around for the Best Rates

Interest rates and loan requirements vary across lenders. Do your research to find the lowest interest rate available to you, as this can save you a significant amount over the life of the loan.

Improve Your Grades

Some lenders offer discounted interest rates or other perks for students who maintain a certain GPA. So, hitting the books can literally pay off when it comes to securing a car loan!

Be Patient

If you're unable to qualify for a loan with an affordable interest rate, consider waiting until you've built your credit, saved for a larger down payment, or secured a steady income source. Purchasing a car is a significant financial commitment, so it's important to be patient and make an informed decision.

Frequently asked questions