How to Find a Student Auto Loan

Students without a credit history may have a difficult time qualifying for a car loan. A credit history provides the financial institution a way to verify the applicant is capable of paying back the borrowed money, since many students do not have a credit history. However, there are financial institutions that will work with students to secure a car loan without the traditional requirements. To qualify for the auto loan, the student may need a co-signer with a good credit history. Sometimes a down payment may allow the student to obtain the loan without a co-signer.

Instructions

1

Check with your school's financial aid office and its student services center. Businesses and banks offering discounts, loans and special pricing for students will relay this information to appropriate departments within a school's administrative system.

2

Contact your bank and inquire about student car loans. Having a checking or savings account with a bank may help you obtain a car loan. If the bank initially refuses to lend you money, find out what you need to do to qualify. Qualifying may be as simple as keeping a minimum balance in an already established savings or checking account, making a down payment or providing proof of school enrollment.

3

Contact area banks and credit unions and inquire about student auto loans. To qualify, the student may be required to open an account with the bank or have a co-signer open an account. Opening bank accounts and applying for loans always requires a Social Security number.

4

Check the local newspapers. Car loans are advertised in the auto section of local newspapers. Check with your local paper to verify what day of the week its auto section is released. Most auto information is usually run on Sunday's, although classifieds are released daily.

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Car Depreciation Rules

Buying a new car is a big financial commitment, whether you dip into your savings or finance the car and take on a monthly payment. In either case, one thing you'll need to prepare for is depreciation, which occurs over time as a car naturally loses value. Understanding the rules of depreciation can help you maintain your car's value and plan ahead for its sale or trade-in.

Factors

Many different factors contribute to auto depreciation. They include the region where you buy your car, the make, the model, the optional features and how many miles you put on the odometer each year. Heavy use and damage will speed up the depreciation process but even if you keep your car in excellent condition it will lose up to 20 percent of its value within a year, according to Edmunds (10 percent of which it loses the moment you drive it off the dealership lot and it goes from new to used). As a rule, sports cars and other rare vehicles hold their value better than more common cars simply because buyers interested in used models will have fewer options to select from. New models and major changes to a model line drive down the value of older cars that take on an outdated appearance or reputation.

Gap Insurance

One situation where vehicle depreciation should matter to you is when you finance your purchase and need to consider gap insurance. Depending on your down payment, you only own a small percentage of your car when you drive it off the dealer's lot. Even though you have insurance, it will only pay for the car's actual value, which begins to fall immediately. If you owe more than your car is worth, gap insurance is an optional form of insurance that will pay for the difference in the event of an accident that your insurance provider deems a total loss. The faster your vehicle depreciates the more use you might have for gap insurance until you make enough payments to reduce your loan debt below the depreciated value of your car.

Lease Agreements

Another case where depreciation figures into your financial decisions is when you opt to lease a vehicle. At the end of the lease you'll have the option to turn your car in or pay the predetermined buyout and own the car. However, because of depreciation buyouts seldom represent reasonable values. Most cars depreciate to well below the buyout, which means you'd be better off turning in your car and buying a similar model elsewhere for market value. If your vehicle doesn't depreciate because of special features or meticulous care, the buyout might even represent a bargain.

Tips

There are several ways to slow the rate at which your car depreciates. One is to avoid excessive mileage, which drives down value. Another is to keep the car in generally good repair and attend to accident damage promptly. Much of your control over how fast your car depreciates disappears once you make a buying decision, so research used examples of each model you consider and see how well they hold their value. More expensive engine options or performance packages may slow depreciation rates, especially for sports and luxury cars, but they're still unlikely to pay for themselves when it comes time to sell your vehicle.

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What Do I Need When I Buy a Car?

You should always thoroughly prepare when buying a car. Know your credit score and report, payment range and what you are looking for before applying for a car loan. Make a list of questions you may have and items to take with you when you begin your new car search.

Employment

Lenders want to see that you have a job with sufficient income to make the payments and afford your other living expenses. They generally look for a monthly income of $1,600 or more and that you have been with your current employer for at least six months.

Driver's License

If you are the purchaser and you are applying for a car loan, you will need a driver's license. You can have the best credit in the world, but without a driver's license, that car you love will remain on the lot. If you are paying in cash, a state identification will suffice. You will need a driver's license to obtain automotive insurance, so it is in your best interest to get it before you even start the process.

Credit Score

To take advantage of the low interest rates that are advertised, in most cases you need a credit score of 680 or above. You will more than likely pay a higher interest rate if your score is between 600 and 680. Finding a lender willing to finance you with a score between 550 and 600 is quite difficult. With a score below 550, you may not qualify for a car loan. Remember that lenders are different and have their own set of qualifications; ask what they are before you apply.

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How to Calculate a Lease Payment With Money Factor

Calculating a lease payment with a money factor lets you estimate the monthly lease payment for a vehicle before you visit the dealership. This lets you consider just how well a particular vehicle can fit within your monthly budget. Money factors are used to express the interest rate applied to an automobile lease, and it is equivalent to a interest rate divided by 2400, explains Edmunds.com. For example, an interest rate of 4.99 percent converts to a money factor of .00208. Money factors are used almost exclusively with automotive leases.

Instructions

1

Calculate the residual of the vehicle that you plan to lease. Residual value is calculated by multiplying the vehicle's Manufacturer's Suggested Retail Price (MSRP) by the residual value percentage. For example, if a vehicle has an MSRP of $20,000 and a 50 percent residual value, the residual value of the car is $10,000 at lease end. Edmunds.com recommends that you call the bank or auto dealership to obtain the residual value.

2

Calculate the total depreciation. This figure is calculated by subtracting the residual value from the negotiated selling price of the car. For example, if you negotiate a selling price of $19,000 and the residual value is $10,000, the total depreciation during the lease term is $9,000.

3

Divide the depreciation by the lease term to calculate monthly depreciation. If this is a 36-month lease, divide $9,000 by 36, giving a monthly depreciation figure of $250.

4

Calculate the monthly interest using the money factor. Add the negotiated price of the vehicle ($19,000) to the residual value ($10,000) for a total of $29,000. Multiply this total by the money factor, which is .00208 in this instance. The resultant monthly interest is $60.32.

5

Add the monthly depreciation and monthly interest together. In this example, the total is $310.32.

6

Calculate the monthly sales tax. Just like depreciation and finance charges, the tax on an auto lease is calculated on a monthly basis. Multiply your monthly base payment of $310.32 by your local tax rate to obtain the total monthly payment. For example, if the local tax rate is 7 percent, multiply the payment of $310.32 by 107 percent to include tax in the figure. The total resulting payment is $332.04.

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If I Owe Money on My Car Can I Buy a New One?

Buying a new car while you owe money on another loan is a possibility, although not everyone can have two loans at once because of income or credit issues. You can also trade your vehicle toward a new purchase; the dealer will pay off your old loan. Before pursuing either option, budget accordingly or consider trading or selling your car instead.

Bank Determining Factors

When you apply for a second car loan, a bank uses your current income as a determining factor. The bank accesses your credit history to view your debt. On your credit application, expect to provide the name, phone number and address of your current employer. Expect to also supply a copy of your most recent paystub, which the bank uses to determine your annual income. If you have a positive payment history with creditors, a stable job and decent income, a second loan is likely.

Budgeting

Even if you do obtain an approval for a second car loan, you should carefully review your budget to determine the true costs of a second car and if it is affordable. Most lenders require a full coverage insurance policy on its vehicle (the most expensive you can purchase), so your insurance cost will likely double. You'll also have to maintain two cars, so check with a dealership or service shop to find out about recommended service schedules and cost.

Trade-in Option

Even though you still owe money on your current vehicle, you can use it as a trade toward another purchase. In the event you trade your vehicle, the dealer will pay off the vehicle's loan balance. If you were unable to obtain an approval for a second loan, a bank might allow you to take out a new car loan if you end your current one. You can transfer any excess loan amount, or negative equity, into your new loan or use the trade's equity as a down payment.

Sell Your Current Vehicle

If you couldn't obtain a second loan because of your income but don't want to trade your car, consider selling it on your own for more profit. Dealers offer wholesale value for trade vehicles, which is the lowest when compared to other options. Private sale values, which you can gauge at Edmunds.com or the Kelley Blue Book website, are thousands higher than wholesale value. Even with a loan, you can use your sale amount to pay off the loan balance. However, you must come up with the loan's balance if you can't sell your car for the loan's total payoff.

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Can You Take Over an Auto Loan for Someone Else?

Some auto financing lenders may be willing to transfer a loan provided the new buyer qualifies with appropriate credit and employment history. However, many lenders have restrictions that do not permit an auto loan to be transferred. If the seller is willing to sell and the buyer is able and willing to buy, there may be a way to execute the transaction.

About Loan Responsibility

The loan is a legal contract between the lender and the person who purchased the vehicle and signed the loan agreement. That original buyer is responsible for making the payments on time. The title will transfer to him when the loan is paid off. If the new buyer takes possession of the vehicle and does not make payments in full on time, the original buyer's credit will be adversely affected and the original buyer retains responsibility for paying off the loan.

If Lender Permits Loan to be Assumed

If the lender allows loans to be assumed, the original buyer must contact the lender and identify himself with his personal information and loan number. The new buyer will then need to qualify for the loan, submitting his Social Security number, date of birth, and verification of employment and address. The lender will likely check the new buyer's credit. The new buyer will also need to provide evidence of insurance for the vehicle.

New Buyer Gets Personal Loan

The new buyer could take out a no-collateral, personal loan in the amount of the purchase price of the car. He would give the money to the original buyer, who would use it to pay off the existing loan and then transfer the vehicle to the new buyer.

Agreement Between Friends

If the original buyer and the new buyer are friends, they could agree for the new buyer to take possession of the vehicle, have it insured and sign a contract to make regular payments to the original buyer. The original buyer would send these payments to the lender. At payoff, the lender transfers title to the original buyer who transfers title to the new buyer. All is well provided the new buyer makes all payments in full and on time. If the new buyer fails to pay and has possession of the vehicle, the original buyer is at risk of financial loss.

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Requirements to Finance a Car

Whether you're a first-time buyer or a seasoned veteran on the subject of automobile financing, there are certain requirements you must provide to obtain a loan. Meeting those requirements becomes increasingly important with every additional dollar you borrow.

Down Payment

There are times when you can get a car loan with little or no down payment. Most times, however, you need about 10 percent of the full purchase price of the new car as a down payment. A down payment partially shields the lender from the depreciation of the car. In lieu of a cash down payment, you can also offer your old car in trade for the new one. It's the same as a down payment in that it offers the lender protection--except it serves to reduce the loan required instead.

Grant Access To Credit Reports

Before making a car loan, most lenders ask permission to contact one or all three of the credit bureaus for your credit report. Each one rates your credit in a different way, but they all rely on your repayment history, current availability of credit and other information about you. In addition, some lenders ask you to fill out a financial statement. The lender will grant you the loan if all of that information meets his criteria.

Job History

Many lenders will ask you if you have had the same employer for at least 2 years. It's his way of verifying that you have a steady income. If you have been employed a shorter length of time, you may have to tell him the name of your previous employers. Your lender may also ask for your permission to contact your employer to verify that information.

Residence

An automobile lender may ask if you have lived at your current address for at least 2 years and whether you rent or have a mortgage. If you haven't lived at the same address for 2 years, he will likely ask you the address of your previous home; if you are a renter, he'll ask for the name of the landlord and permission to verify that rent has been paid.

Approval and Timing

Your auto loan will be approved if you meet the lender's minimum standards. If you don't, he'll either increase your interest rate on the loan to cover the added risk or will turn down your request. Most car lenders can tell you the status of your loan application within an hour or two.

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