Owning a car can be crucial in your daily life as an international student because of its convenience. A car gives you the freedom and flexibility to explore new places around your campus and attend classes on time, especially if you live off-campus. This reduces reliance on public transport which can be unreliable sometimes.
Buying a car can be expensive, especially for a student without a reliable source of income. However, access to a car loan can allow you to acquire a vehicle. As an international student, you can qualify for a car loan, but there are several aspects that you must know. You can also consult an agent for advice on car loans for international students. Having said that, here are six things to know if you need a car loan as an international student:
Details About Car Loan For International Students
A credit score is a three-digit figure that shows your creditworthiness. A lender uses your credit score to assess the risk of lending money to you. For example, if you’re always paying your debts on time, you’ll have a higher credit score than someone with several payment defaults. Therefore, your credit score is vital in determining whether you can get a car loan as an international student.
Most lenders’ preferred credit score is at least 661 and above, which can be difficult for international students new to the country. Moreover, it’s common for international students to have a limited credit history, which makes it challenging to qualify for a car loan.
Suppose you encounter this challenge; getting a co-signer with a good credit score can help you get a car loan. The co-signer can be a family member or friend, but they must agree to co-sign the loan for you. The implication of getting a co-signer is that they’ll be equally responsible for repaying the loan if you default.
Source Of Income
Another factor that can increase your chances of getting a car loan is proof of employment with a steady income. Lenders are comfortable giving a car loan to someone with a stable job because it guarantees repayment.
If you don’t have a stable income, you can get a part-time job or use a job offer letter to show there’s income. Financial stability can significantly increase your chances of getting a car loan approval. Suppose your income is limited; you can take up another job to ascertain steady income. The extra cash can also help you cater to other car needs, such as gas and insurance.
When buying a car, you’ll have to make a down payment, a sum of money paid upfront. A down payment makes up a certain percentage of the car’s total value. For example, the lender might require you to pay 10% of the total purchase price as a down payment. If the car’s purchase price is USD$ 10,000 and the down payment is 10%, you’ll have to pay USD$ 1,000 upfront.
You can increase your chances of getting a car loan approved by making a higher down payment. For illustration, if the lender requires a minimum downpayment of 10% and you offer to pay 20%, you’ll likely have the car loan approved faster. Moreover, a higher down payment can result in a lower interest rate, thus saving you money for the loan.
The loan term is the period you intend to repay the loan in full. This period depends on the terms of your agreement with the lender and can range from 36 to 72 months. Other factors that affect the loan term for a car include the cost of the vehicle and your creditworthiness.
Ensure you carefully consider the loan term when applying for a car loan because it determines how much you’ll pay for each installment. Additionally, the loan term can affect the total interest of the loan. For example, if you get a longer loan term, the monthly installments would be low, but the total interest paid over the loan period would be high.
In addition, the loan term can affect your ability to repay your car loan on time. Suppose you get a longer period; the cost would be spread out through the months, lowering the cost of each installment. This can make it easy for you to repay the loan, especially with a low income. However, an extended payment period can also cause financial stress, especially if you lose your job or significantly decrease your income.
In comparison, the monthly installments can be high if you opt for a short loan term. This is an excellent option if you have a sufficient and steady income. However, if your income fluctuates, the high monthly installments can cause financial stress or default.
Therefore, it’s advisable to consider your income when negotiating the loan term for a car loan with the lender. It ensures that monthly installments don’t cause financial distress and eventually default.
The interest rate is the cost of taking a car loan from a lender. The interest rate is usually added to the price of a car loan, and you pay it when making monthly repayments. Some factors affecting a loan’s interest rate include regulations, creditworthiness, loan term, and the lender. Some lenders have a standing interest rate on car loans, while others consider several factors when determining the rate.
Qualifying for a lower interest rate is possible if you have a good credit score and a steady income. Hence, you’ll pay less for the car during the loan term. The cost and type of the vehicle can also affect the loan’s interest rate. Sometimes, larger loans get a low-interest rate, while smaller loans have a higher interest rate. In addition, if you’re buying a new car, the interest rate may be lower than that of a used car.
As an international student, you can access several car loan options, including traditional bank loans, credit unions, and online lenders. Research intensively and ask questions on each loan option before settling on one. Some of the aspects you should research include requirements, terms of car loans, loan terms, the down payment, and the interest rate.
Each option is unique, with traditional bank loans having strict credit requirements and high-interest rates but can provide significant loan amounts. In contrast, credit unions can have low-interest rates but strict eligibility requirements. Pick a loan option that’s suitable to your needs.
It can be challenging to get a car loan as an international student who’s new to the country with no credit history or a steady source of income. However, there are several available loan options that you can consider, as detailed above. Ensure that you understand the terms of a car loan policy before taking one to avoid issues in the future.
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