Having your own car can help you make the most of the college experience. It's your link between campus, work, and the outside world. But not all of us have family members willing to foot the bill---or a rusty hand-me-down sitting in the driveway. So, what's a stranded college student to do? Get a taxi? Bike the five hours home? What about taking out a student car loan instead? When done right, financing a car can make sense for college students. But, before we get into the financing process, we'll look at a couple of alternatives and explore the barriers keeping most students off the dealer lot.
Why You Might Not Want to Get a Student Car Loan
Many students are just taking their first steps on the road to financial independence. This will be the first big purchase most of them make and can potentially sink their credit score. This risk is just one reason you might want to avoid financing a new or used car. Here are a few more:
There's a lot more to owning a car than making monthly payments. There's also maintenance—which costs the average Canadian between $500 and $700 a year—and full-coverage insurance to worry about. As a younger driver with little to no driving history, you'll likely get stuck paying a premium on the latter. To prevent congestion, many colleges also charge a few hundred dollars a year in parking fees. So, before buying a car, ask yourself if your bartending job is really enough to cover the costs. Will it still be enough when your student loans come due?
Financing Isn't Easy
As a student, you have little to no credit history. You're also unlikely to have a consistent source of income. In conjunction, these two things can make it hard to get financing. Without taking advantage of the advice listed below, you might find it next to impossible to find a car without a ridiculous APR. If so, it's best to skip the wheels and focus on building your credit instead.
Your Life Is in a State of Flux
Do you have to fly home on holidays? Will you even be in Canada after you graduate? While a car represents freedom in college, it can be an unwanted burden afterward. Think carefully about your plans after college and whether or not a financed car fits into them. If not, it's best to leave the car on the lot.
It's Not Your Only Option
When we think car, most of us think dealership. And, it can be hard to shake that association. But getting around doesn't have to mean putting yourself into debt. Consider using public transportation, biking, ride-sharing via Uber, or paying outright for a beater. All of these things let you have your freedom without putting your future on the line.
Still Want a Student Car Loan? Here are a Few Things You Can Do to Make It Easier
Sometimes a student car loan is less of a want and more of a need. This is especially true for commuter students and those attending school in rural areas. Even though the Canadian car loan process stays the same, there are a few things you can do to make having a positive experience more likely:
Build Your Credit
As mentioned earlier, financiers see students as higher risk than people in other categories. To avoid getting stuck with a higher interest rate, consider getting a low-balance credit card and making regular payments. Or, if that is not an option, get added as a secondary user on a family member's credit card. Just make sure that family member has a high credit rating. Doing these things will give your credit a boost and lead to lower interest rates at the dealership.
Hit the Books
Some lenders will give you a discounted interest rate for maintaining an above-average GPA. Banks see this as proof of your stability and dedication to your studies. So, if that car purchase is a few months off, put some time into studying and raise those Cs to Bs. Your wallet will thank you.
Leave the Luxury for Later
You shouldn't go into this aiming for a higher-end vehicle. Instead, look for an older, used car with good ratings for safety and reliability. Though it might not be your dream car, it'll be enough to get you from Point A to Point B. To figure out how much car you can afford, check out our car loan calculator.
Bring Cash to the Table
Bring between 5 and 10 percent of the car's cost to the closing table. This larger down payment will offset your low credit score and lessen your financier's perceived risk. That'll make it easier to get approved.
Get a Cosigner
If you can cover the payments and the insurance out of pocket but are having a hard time getting approved, you might want to consider getting a cosigner. By sharing responsibility for your non-payment, a cosigner can help lower your interest rate and improve your chances of getting conventional financing. Just make sure that the person you choose has a credit score above 700.
Don't Use Your Student Loans to Pay For It
You'll use your car for school--why not just take out school loans to cover it? There are actually a few reasons for that. First, school loans usually have higher interest rates than conventional car loans. Second, they can be harder to discharge in bankruptcy. Finally, their terms tend to be 10 years or longer which will leave you paying for a car long after it's gone. In short, get dealer financing, pay with cash, or sell your plasma, but don't use class funds to cover it.
Let Car Loans Canada Get You the Financing You Deserve
It's possible to get a student car loan, but that doesn't mean it's easy. As somebody without a stable income source and a long credit history, bankers are likely to see you as a risk. But, by putting in some legwork up front, you can overcome these financing barriers and get a car that serves your needs.