As a student with little experience with money — and probably no credit — it’s difficult to borrow. This includes trying to get a car loan. If you want to increase the chances that you will be approved for a car loan (and that you will get a better rate), here are two strategies to try:
Find a Co-Signer
If you don’t have the credit to get approval for a car loan, it can make sense to find a co-signer. When I bought my first car, as a freshman in college, my parents co-signed for me. I didn’t have a credit card (yet) and I was just starting my job in the university cafeteria, after having spent the previous year as a piano teacher, so my work history was thin.
My parents co-signed for me so that I could get approved, and get the best possible rate. They agreed to take responsibility if I defaulted on the loan. I made the payments, though, and made them on time. This helped me build my credit with an installment loan, and my parents never had to bail me out.
It’s important that you show you can handle the debt if you ask someone to co-sign your auto loan. Make sure you truly can afford the payments on whatever student salary you have, and make it a point to pay on time. If you haven’t shown that you are responsible with your finances, no one will be willing to help you by co-signing on your loan.
Start By Build Credit with a Credit Card
For those who have a little more time, it can be a good idea to get a student credit card. If you have a job that allows you to make payments, you can get a credit card without a co-signer, even if you are under 21. You just have to make sure you can prove your ability to pay.
Once you have your credit card, you should make small, regular purchase, and pay off the balance as soon as possible. That way you will avoid paying interest on your balance, but you are still building a good credit history. If you can show a good credit history, you might be able to get a car loan.
Even so, your credit history might be short enough that you need a co-signer anyway. Be prepared for that possibility. But realize that your credit card, plus a loan co-signed by someone else, can provide you with a solid base so that next time you buy an affordable car, you will be able to do it on your own.