As a college student, car financing can be a great way to buy a car without it costing a ton. By using auto financing, you can break down the cost of your vehicle into affordable monthly payments and manage those costs as part of your overall budget.
But how do you apply for car financing as a student? Are there ways to improve your chances of being approved? And what kind of things should you consider before completing an application? Before you begin your application process, here are a few things to keep in mind.
Can I afford it?
With standard student expenses, everyday errands, and other payments you need to watch out for, you first need to decide if you can really afford to own a car. Even if you think you can afford the monthly payments, you still need to consider the other costs of owning a car (eg fuel, maintenance, etc.).
What type of car financing should I choose?
You have the choice between two main types of car financing: hire-purchase and purchase on personal contract. Hire-purchase (HP) is a more traditional type of financing, where you have a fixed monthly payment and can own your car at the end.
Personal Contract Purchasing (PCP) is slightly different. This may be a more popular option as it allows you to purchase, return or trade in part of your vehicle at the end of your contract. With a personal contract purchase, you may also benefit from lower monthly payments, but you will pay a larger lump sum payment if you choose to purchase.
If you think you can afford a car, you need to figure out what monthly payment you want to pay. If you’re struggling to get by each month, spreading your car payments over time can lower your monthly costs. On the other hand, if you are able to pay off the car more quickly, you can shorten the duration.
Do I have a good credit rating?
You can improve your chances of getting car financing if you have a good credit score. A good credit score can tell lenders that you’ve used credit responsibly and can trust car financing because you’re more likely to pay back the money you borrow.
Many students may struggle at this stage because they haven’t had time to build a credit profile. Additionally, it may show that you have poor credit, and lenders may refuse you for this reason. Fortunately, there are quick ways to improve your credit score – check out this list.
Register on the electoral lists
When you register on the electoral lists, you register your contact details; this can help lenders confirm your identity and therefore your credit score may improve.
Apply for a mobile phone contract
By signing up and getting a mobile phone contract, you can prove to people reviewing your application that you have already made regular and on-time payments.
Apply for a credit card
When used correctly, a credit card can also improve your credit score and help improve your chances of getting approved for other loans. It can also benefit you in other ways, as it can help you make big purchases and protect you from fraud.
Will the request affect my credit rating?
You can often check your eligibility for auto finance online using a simplified search credit check; this will indicate whether you can be approved if you were to apply for full funding. This first step will not affect your credit score, regardless of the outcome. So if you are not approved during the initial software search, you can easily walk away.
Just beware of those who don’t offer this option and only offer a firm credit search. The result of this type of search will be visible to lenders, so if you are found ineligible, lenders will be able to see that you have been declined.
Can I get car financing with bad credit?
Even if your credit is poor, there are ways to get approved. You can apply for car financing from a specialized lender, who will take your particular situation into account.
When applying for financing with a bad credit score, some lenders will be more lenient if you show signs of improvement. You can apply for specialty auto financing through a lender with bad credit and strike a deal that fits your budget and terms.
With so much to consider, you need to take the time to explore your financing options and find an offer that will meet your needs. Any decent car dealer will tell you about your options – but keep the above in mind to improve your chances of getting approved.