For most college students here in Seattle, not having credit is probably the biggest obstacle to a car purchase. They need a vehicle to get them to and from school, but their lack of credit history makes buying a car seem like a long shot. Fortunately for students, there are certain things they can do before applying for a loan that can help them get approval.
If you are a student in need of a reliable mode of transportation, read on below to find out what things you can do to better your chances of getting that car loan.
Start building credit
Before you apply for a car loan, work on establishing credit first. There are several ways you can do this. For instance, you can pay your bills on time. Know that payment history is key factor in determining your credit score, so make sure yours is clean. Also, you can get a secured credit card. This works the same way as a conventional credit card, but it comes with a security deposit. With this card, you have to deposit a particular amount to the financial institution and this amount will serve as the collateral. Your credit limit is equal to the money you have deposited.
Prior to establishing credit, get a copy of your credit report first. Get one from each of the three credit bureaus—Equifax, Experian and TransUnion—from AnnualCreditReport.com to ensure you don’t have a credit history. You are entitled to one free copy from each bureau every 12 months.
Open an account with a bank or credit union
If you don’t have a bank or credit union account, you should consider opening one. Lenders will want to know how you handle money, and they will figure it out based on your record of deposits and withdrawals.
Having accounts in the aforementioned financial institutions is also advantageous for you because you are more likely to get approved by lenders that you do business with. Banks and credit unions are ideal sources of auto financing and they would be more accommodating despite your lack of credit because you are a client. In the case of credit unions, you are not just a client—you are a member of the community. Thus, they would go out of their way to help you secure a loan.
Get a job
Because you will be making monthly payments, you need a steady source of income. Lenders will only be convinced to offer you financing if you can prove to them that you can make the payments. If you don’t have a job, find one now. It would be best for you to have a steady paycheck by the time you apply for a loan.
Save a large sum for down payment
The moment you get a job, start saving for a down payment. You have better chances of getting a student car loan if you can offer the lender a significant sum upfront. Why? A hefty down payment tells the lender that you are very much invested in this purchase and therefore less likely to miss payments and/or default the loan. After giving that much money to the lender, you wouldn’t want to be irresponsible and lose the car in the process.
The ideal amount for a down payment is 20 percent of the car’s price. Find out how much cars cost to estimate how much money you need to save, then save as much as you can. The bigger the down payment, the better your chances of approval.
Get a co-signer
Nothing improves your chances of getting a student car loan faster than having a co-signer. Find someone preferably with excellent credit—it can be a parent, relative or friend—and ask them to co-sign your car loan. The other person’s credit is that which will clinch the deal for you.