Having your own vehicle is the first taste of freedom for a lot of students. But if you need a car as a student, the task of financing it can be hard work on little to no budget and with equally minimal credit held by most twenty-something’s. But don’t worry! If you are a student looking to finance your first car, there is an abundance of cheap auto funding. We have broken down some smarter, student-friendly approaches in this car financing guide to ensure that you can finance a car without requiring robbing the bank.
1.Understand Your Financial Situation and Set a Budget
Before you jump headfirst into auto financing, make sure to honestly assess the health of your finances. Most students are on a limited income so it is important to budget around this. Determine how much you are going to be making each month, this can involve part time job salaries or grants money as well as any monetary allowances that your family may have offered. Then, consider all your expenses, such as rent, utilities, groceries, and tuition fees.
Once you figure out what your living costs would be, work on how much money can set aside to make car payments. Please note: Your monthly car payment should be ideally 10-15% of your gross monthly income. Also do not forget to add extra costs like the insurance, fuel and maintenance that come under the long term cost of ownership for a car.
2. Explore Student-Friendly Financing Options
As a student, you may not have an extensive credit history, which can make traditional loans harder to obtain. However, there are several financing options tailored specifically to help students get behind the wheel.
- Credit Unions: Many credit unions offer lower interest rates and flexible loan terms, and they’re often more willing to work with students who have little or no credit history.
- Co-Signer Loans: If you’re having trouble qualifying for a loan on your own, having a co-signer—such as a parent or guardian—can significantly increase your chances of approval. A co-signer with a good credit score can help you secure better interest rates, but remember that they will be responsible for the loan if you fail to make payments.
- Student Auto Loans: Some lenders offer specialized student auto loans that cater to students with minimal credit. These loans may come with higher interest rates, but they are a viable option if you’re starting to build your credit history.
3. Consider Buying a Used Car to Save Money
A new car can be alluring, but when it comes to purchasing a vehicle as a student, penny-pinching students are better off buying used. Since used cars are generally cheaper, you have to borrow less money and pay off that smaller loan in interest. Finally, with lower new and used car prices comes the ease of keeping value in your purchase as a result of slower depreciation seen on pre-owned vehicle models.
If you do want to buy a used vehicle and cannot use all the options available, that is okay — just be careful where there are no good data. Review the history report of this vehicle, ask about prior ownership and have your dependable mechanic check for hidden issues with a fine tooth comb. Most certified pre-owned vehicles feature warranties, delivering extra peace of mind.
4. Shop Around for the Best Loan Terms and Interest Rates
Car financing is a big investment, so you should get quotes from different lenders for terms and interest rates. Seek loan offers from a variety lenders, which can include banks and credit unions as well online lenders. All will provide different interest rates and loan terms depending on your credit score, the amount of money they are lending you within a certain time frame.
A difference even in one-half percentage point can translate into lots of thousands over the life of the loan. You will generally get a good idea of what different loan options looks like just using online tools such as auto loan calculators (there are many available) to compare monthly payment and the total costs.
5. Build Your Credit Score for Better Loan Options
If you are looking to finance a car in the near future, it is best that you begin building your credit now. Getting a higher credit score will make you eligible for superior loan terms and lower interest rates, which can save your money on the long run when owning that vehicle.
Students may be able to build credit by getting their own student-specific card, or they can become an authorized user on a parents’ account. This will ensure you make on-time payments and keep your balances low, both of which are beneficial to the long-term health of your credit score. By just slightly increasing your credit score you open yourself up to a wider range of financing when purchasing this car.
6. Consider a Down Payment or Trade-In to Reduce Costs
Making a down payment is one of the simplest methods to lessen your loan and decrease your monthly payments. The more you put down, the less you have to borrow so loan is easier. It can be hard to save a lot while you are still in school, but even saving for the down payment could make all of the difference.
If you have a car already, think about trading it in to help finance your new ride. A standard policy, most dealers will credit the trade-in value of your current vehicle against your new purchase saving you a lot in reduced finance.
Conclusion,
While it may be daunting to consider financing your first car as a student there are ways of overcoming this. As long as you know your budget, check out financing options designed for students and take the time to shop around for a good rate, there may be an auto loan that works with your financial situation. Keep in mind, this is a large financial step; do your homework and make the decision best for you. With a sound plan in place, you will soon be buying your first car without breaking the bank and driving around confidently on Indian roads.
