The Challenges Of Getting Car Finance As A Student
Most students are aged between 18-21, which means they haven’t had an opportunity to build up their credit history. Moreover, some lenders may worry about a student’s chance of regular income as they are studying, making them hesitant to offer students car finance deals
Can Students Get Car Finance?
Yes, students can get car finance – but it’s not always as straightforward. The common car finance deals available for students are..
Hire Purchase (HP)
A hire purchase agreement allows you to potentially own the car outright at the end of the agreement. You’ll split the full cost of the car between the deposit and the monthly repayments, and then have the option of paying a small fee known as ‘option to purchase’ at the end of the term
Personal Contract Purchase (PCP)
PCP is a form of car finance that allows you to pay less in monthly fees. At the end, you’ll have three options: paying a fee based on an agreed guaranteed future value to own it, returning the car and walking away, or upgrading to another car and keeping an agreement going
Guarantor Finance
Using a guarantor loan can improve your chances of being approved for car finance. A guarantor is someone who will help you make payments if you struggle to do so. Typically, a guarantor is someone you know, often a family member.
Car Finance For Students With Bad Credit
While building a good credit score may take time, there are lenders willing to help students find the best car finance deal possible. Having a bad credit score doesn’t necessarily prevent you from owning a car, and there are strategies to improve your credit score over time
Can You Increase Your Chances Of Getting Car Finance As A Student?
Improving your credit score and obtaining car finance as a student doesn’t have to be difficult. Here are some strategies:
Improve Your Credit Score: Understanding your credit score and what affects it is crucial. Consider getting yourself on the electoral roll, get a credit card and pay it off regularly, and make payments reliably
Get a Part-Time Job: Having a regular income through a part-time job can make you more attractive to a potential lender, increasing the likelihood of approval for an ongoing credit agreement like car finance
Know Your Budget: Understanding your budget and your financial limits is crucial. If you apply for an unrealistic car finance deal, you risk rejection and subsequent impacts on your credit report. It’s essential to work out what you can afford to spend, both upfront and on monthly installments
The Impact Of Student Loans On Car Financing
For many students, student loans are a necessary part of their financial landscape. While these loans enable access to education, they also contribute to a student’s overall debt load and can affect other aspects of their financial life, including the ability to secure car finance.
Understanding Student Loans
Student loans are funds borrowed to pay for higher education. These loans need to be paid back over time, often with interest.
Student Loans & Your Debt-to-Income Ratio
One significant way student loans can affect your ability to get car finance is through your debt-to-income ratio (DTI). This ratio is a measure that lenders use to assess your ability to repay the money you borrow. It is calculated by dividing your total monthly debt payments by your gross monthly income.
If you have substantial student loan payments each month, this can increase your DTI, making you look riskier to lenders. A high DTI may lead to higher interest rates or even disqualification for car finance.
Managing Student Loans & Car Finance
Even with student loans, there are ways to improve your chances of getting approved for car finance:
Make Regular On-Time Payments: Consistently making your student loan payments on time can positively impact your credit score, enhancing your attractiveness to lenders.
Consider Income-Driven Repayment Plans: Consider income-driven repayment plans which can lower your monthly payments, reducing your DTI.
Pay Down Student Loans: If possible, pay down your student loans faster to decrease your overall debt load and improve your DTI.
Remember, each financial institution may have different criteria for offering car finance. It’s beneficial to shop around and compare options to find the best deal.
🚗 You might like this guide: Ways to save money as a student.
