Being a student can be stressful, especially when you are lacking independence in the form of a vehicle. Getting to and from lectures is difficult in itself but not having your own transport can be truly exasperating. There is a solution, however, in the form of a car loan. This may sound like an impossible feat but it can be done if you follow some simple steps in preparation.
Finding and buying the perfect used car takes time and effort, but you will feel even less secure about it if you know you do not have the finances to make a purchase. The steps to acquiring a car loan while studying are outlined below and should provide some much-needed insight into the issue.
Have your documents ready
The first step in any car loan application process involves readying all the pertinent documents. The documents you will need to provide with the loan application are as follows.
- A South African identification book or passport, if a foreign national
- A copy of your cosigner’s identification book, if using this option
- Proof of residential address, such as a utility bill or copy of a lease (no older than three months)
- Proof of enrolment in a university or tertiary education institution
- A copy of your driver’s licence
- Proof of income, if you are earning an income, or proof of your cosigner’s income (no older than three months)
Once you have gathered these documents, you can submit them along with an application form to your chosen bank or financial institution.
Calculate how much you can afford
Calculating how much you can truly afford to spend on a monthly basis is one of the most important steps in the process of applying for a car loan. Many websites provide a loan calculator, which you can use to calculate how much you can truly afford.
Using an online calculator or drawing up a budget will give you a visual representation of what your monthly expenses will look like. If you see that it is an expensive amount, recalculate and reconsider the car you have your heart set on in order to lower the amounts.
Find a cosigner
If you have no credit history, you may need to find a cosigner. A cosigner will help you to pay off the loan, but be warned that they also take on the responsibility of repaying the loan. If the cosigner has financial troubles then they may not be able to make the repayments, so it is a risky decision to make.
Finding a cosigner who is employed full-time and who has a steady income flow and a positive credit rating will decrease your risk in the eyes of the bank. A cosigner does not have to be a parent or family member, but be sure it is someone who you trust enough to make this commitment with.
Explore all options
When approaching a lender or bank for a loan, remember to explore every option before settling on one. You may find that the dealership has specific eligibility requirements which are not advertised but that you meet regardless of being a student. The interest rates for secured and unsecured loans are vastly different, so be sure to check these with each lender or bank you approach.
If you are able to, inquire about whether changes to the down payment amount or interest rate will change the loan. Offering a larger down payment may persuade the bank or dealership to approve your loan and asking for higher monthly payments could also persuade them but be sure that you can afford both of these options before making a commitment.
Look for refinancing deals
One option that is ideal for students is to take out finance where refinancing is possible at a later date, once they have built up credit and funds. This can allow you to negotiate better terms and interest rates the second time around.
Refinancing may not be available through every dealership or bank, so be sure to ask beforehand to ensure this option is available. A refinancing option will also help to boost your credit rating as it allows you to build your credit history which can help if you need to take out other loans.
Stick with economy car models
By choosing an economy model, you will also be saving on expensive new parts and fuel costs. You may have had your heart set on a bright red convertible but this is not a realistic goal for someone in your position. Look for reliable, sturdy cars that can transport you easily from home to university and you will be set for your higher education career. Following the steps outlined above will help you to drive away in a new set of wheels.