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Four Alternative Ways College Students Can Use to Buy a Car

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Cars for college students

Isn’t it cool to ride in your own car while still on campus? Of course, it is regardless of whether you’re just driving it to class or to work. For some students, their parents may come to the rescue either by financing the purchase or offering one of their old cars.

However, for the majority of the students, they’ll need to find other financing options to fund their dream of owning a car. If you fall into this category, here’s what you need to know about getting a car while in college and the options available.

What You Need to Know

To get a traditional car loan, you must provide proof of income and must have good credit. If you lack either, you may have to look elsewhere for a loan. In addition, conventional lenders don’t offer car loans to student borrowers for obvious reasons.

Having said that, alternative long term installment loans lenders are your next best option. While they may offer you the loan, you’ll have to pay high-interest rates to cover associated risks of being a student borrower. In fact, APRs can go as high as 25% for subprime borrowers.

On the other hand, prime borrowers will only pay 4.95% interest. It gets even better for those with excellent credit because they can get rates as low as 3% or 2%. Even a single percentage drop can save you a lot in interest – up to thousands of dollars.

If you’re looking for a cost-effective way of owning a car, take a look at these 4 options.

1. Save for the Car

The peer pressure to live largely and the temptation to buy a car while in college is real. However, there’s no good feeling like buying a car with your own money (probably cash). You don’t have to go for an expensive car, according to Edmunds, a used car will cost you at least $20,247.

However, you can also get a car for as low as $5,000 or even less. Keep in mind, taking out a loan to finance your dream of owning a car can be detrimental to your overall financial situation. Besides, there are more costs to factor in apart from just buying the car. There’s servicing, gas, and insurance.

Instead, consider saving for a car or ask your family members to gift you the money. Scouring the internet for a cheap car is a great option but the best place to start is with your immediate circle. These are your family members, friends, and neighbors.

2. Take Out a Traditional Loan

This will only work for students who already have great credit and have a job while still in school. Credit unions, dealerships, and banks will extend the loan only if you can show you can make the required monthly payments and that is often through providing proof of income.

Conventional loans may get you better terms than those offered by lenders but it’s best to use a loan calculator to know what terms and rates you’re likely to qualify for. If your credit doesn’t allow you to get favorable terms, consider improving your overall credit score and then reapply once you get to the 670 range.

Keep in mind, favorable rates and terms are just some of the factors to consider when taking out a loan. The most important factor is affordability. Can you afford the loan? Don’t just think about the present, consider your financial situation after graduation as well.

Also, do you really need the car now? Is using other transportation options such as rentals a better financial option as you wait to get better placed to buy a car? As you answer these questions, don’t get tempted to use your student loan to buy a car.

First of all, it’s not a good idea because you may end up paying more in interest than with a conventional loan. Second, the federal student loan program does not consider cars as an educational expense.

3. Use a Cosigner

Are the lenders still rejecting your loan application even after showing them that you can meet the payments? Don’t lose hope just yet because there’s one more option they won’t turn down. Using a cosigner.

A cosigner is someone who acts as collateral to the loan you intend on taking out. Often, the cosigner must have good credit and a stable income. Note that if you fail to make any payment, the cosigner’s credit will suffer and will be responsible for loan.

Therefore, you must consult your cosigner and address various key issues. For example, what will happen if you lose your source of income? Does the cosigner have any concerns? Also, is there a point when you’ll remove the cosigner by refinancing the loan? These questions will clear the air and ensure everyone is on the same page.

4. Consider Car Sharing

Using Lyft or Uber is a great option when running errands around town. It’s also more economical than buying a car because all you need is money for the ride alone instead of insurance, gas, and service money. However, it can get more expensive than using public transportation.

To get a rough estimate of how much you’ll use in a month, find out your mileage per week. This includes trips to the grocery store, a weekend getaway, and job commutes. Afterward, use the Lyft or Uber app to get a free quote for the trips.

For instance, if you pay $20 to and from your workplace for 5 days a week, then the total amount needed for a month is $400. You can also consider carpooling, which allows people who share the same route to use a single car.

Other car-sharing options include Turo, Car2Go, and Zipcar that rent you a car when you need one. This is a great option, especially if you need a car for a one-time activity such as a weekend getaway.

Bottom Line

While still in college, buying a car is probably the biggest expense you can face at that point. For that reason, you must crunch the numbers and make sense of them. Besides, cars and phones have one thing in common.

That is both may not be pleasing to the eye after a few years. For a car, it’s even worse because it’s accompanied by interest running into thousands of dollars.

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