Car Loans for Students in Canada: 13 Tips to Succeed
As a student you’re probably an expert in loans already, with student loans looming large over your future. However car loans work very differently from student loans, and they have their own rules to follow and tricks to make sure you can get them. This article will tell you all you need to know about securing a car loan as a student.
Use Your Student Status
There are many benefits to being a registered student in Canada, one of which is better loan rates for students with top tier grades. Yes, doing well in school can in fact get you a better car loan. In order to verify that with a lender though you will need to get some paperwork, you’ll need proof of your enrollment in the college or university and you’ll need to prove your grades.
Have a Stable Job
It might seem obvious that you’ll need an income in order to pay off a loan, but it bears repeating. Specifically you’ll need to be able to prove that you can reliably pay the monthly amount without issue. If you have a stable part time job with regular pay then this is easy, if you make your money some other way like contract work or commissions as an artist then this will be harder to prove.
If you’ve been doing it for a few years then you may be able to prove it with tax returns, if not, then unless you take on a properly paying job getting a loan is going to be exceptionally difficult for you.
Find A Cosigner
A cosigner is someone who signs the loan alongside you and takes on the responsibility that if you should default on the loan, they’ll pay off your debt instead. It requires a lot of trust in you and it’s typically done by a family member like a parent or spouse, however the advantage is that it allows you to qualify for loans that you normally wouldn’t, because the bank sees the loan as less of a risk.
Just make sure that your cosigner has a good credit score and history, otherwise it won’t quite work as planned.
Do Your Research
There are many other ways to make the student car loan process easier for yourself. A good place to start is your school website. Most colleges and universities have deals with lending companies that will give you discounts on your interest, and those are of course the companies that you want to start with. You may be surprised by how much of a loan is negotiable if you know what you’re talking about, for example you may be able to reduce monthly payments by increasing your down payment.
Know Your Budget
Student life ain’t easy, especially if you’re paying for it yourself. You need to figure out how much money you can realistically afford to spend on a car and make sure you stick to it. If that means you need to lower your standards a bit then you're just going to have to accept that. You're looking for something to get you around the city, not your dream car.
Remember that your budget also needs to include the costs after you buy the car. Maintenance, fuel and of course Insurance. A cheap car might end up costing you more in the long run in maintenance costs.
Don’t just do this in your head. Make an actual budget. Start a new Excel document (or Google sheet if you need a free alternative) and track all of your costs in a month, see how much you have left for car upkeep and keep that number in mind as you shop around.
Figure Out How You’re Going to Pay
This is going to have a great effect on both how large your budget can be and the quality of the car you're going to be able to get. Trying to get a loan as a student is going to be tricky. It’s possible but you're going to end up with a predatory interest rate since you’ve most likely got almost no credit history.
You can mitigate this problem by having a co-signer, like a parent (although make sure this person has a good credit score first). This can help lower the interest rate. Or you can save up and just buy the car with cash, although that’s obviously going to affect the class of car you’ll be able to get.
Never Go Alone
Unless you're an expert in cars you're going to want someone there who’s more experienced than you are at buying cars. Whenever you go out to look at a car, be it a local dealership or just some car you saw online, bring someone else with you. Someone more likely to catch anything suspicious.
This also goes for the negotiations. Don't be too proud to let someone more experienced than you do the talking, as long as this person knows exactly what you want and how much you're willing to spend.
Make Sure You Need a Car
You may be reading through this and starting to get worried. That’s good, buying a car is not a simple prospect. Before going forward, take a second to reflect on if you definitely need a car, or if you just really want one, that too is an important thing to know. And is going to affect what kind of car you should get.
If you can live, work and study using public transport and walking then it’s worth considering if now is the right time to be thinking about a car at all. There's always cars for sale and you’ll always be able to get one later.
Build your credit
Students are regarded as higher risk borrowers than employees and you have to work hard to overcome that. A sure way to lower interest rates is to prove you’re a good investment by building your credit score. You won’t have much of a credit record so it’s time to build one. Get a low interest credit card and buy your groceries or gas with it. Pay it off each month and your score will gradually increase.
Basic is best
Come to terms with the fact that luxury vehicles will likely be out of reach for a while. Go practical, go reliable. Buy a well known model from a reputable manufacturer. Read reviews, talk to friends and get an idea of what cars are cheap to insure, service and repair. Domestic models usually perform well in this regard but do your research and you should be fine.
Save for a down payment
A common tactic for lowering the cost of car loans is saving a large down payment. The larger that payment, the lower the loan and the lower the interest rate. If a lender knows they have a much higher chance of recouping any potential losses, you are more likely to be approved and should get a lower rate.
Ace your GPA
Some lenders actually offer lower rates to high performing students. Fair or not, a few lenders will offer lower rates to high GPAs as it shows dedication and sensibility. If you’re performing well, you could potentially get a cheaper car loan. If you could perform better, a cheaper car loan could be an important extra inducement.
Keep your loans separate
A student loan and car loan should never be mixed. While a larger down payment is always a good idea, don’t use your student loan to pay it. Life is tough enough as a student without blowing your student loan on a car. Use that to pay for school and use a car loan for a car. A car loan is shorter, easier to pay off and should have a lower interest rate so use that in your favour.
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