Student car loans

Student car loans

Student car loans

Buying a car can be one of life’s more cumbersome purchases. It’s often up there with getting married and buying a house. Most students in Australia are neither property owners nor married, so buying a car is likely to be their biggest purchase to date. And students aren’t widely renowned for their expendable income.

If you’re a student and you’re looking to purchase a car and are struggling to stump up the costs, RateCity will help outline some potential options to help you make the most informed financial decisions.

Where can I get a car loan for students?

The types of car loans that you can apply for as a student may be limited depending on your financial circumstances and credit score. Saving can be hard when you’re a student already on a tight budget, and though an interest free car loan from the bank of mum and dad might be an option for some, asking your parents for help isn’t available to every student. For the students in this bracket, there are car finance options available.

There are several things to consider as a student before diving straight into a loan application. Firstly, you ought to consider your credit score. Lenders will look at your credit score to determine your risk value when trying to get a loan, and this in turn affects your likelihood of approval and the rate you are offered.

What’s a credit score?

A credit score is your personal financial history. It is shown as a number and is determined based on numerous factors:

  • Your age and address
  • Meeting bill payments on time/defaulting on bills
  • The type of credit you have against your name (if any)
  • Whether you meet your credit repayments/whether you default on credit repayments
  • The number of credit enquiries you have issued
  • Bankruptcy/personal insolvency

Any single or multiple of these factors can bring down or increase your credit rating.

Can I get a car loan with no credit?

Having no credit history is unusual but may be the case for some students if you have yet to be financially independent. You could find yourself with no credit score if you have never paid bills, been on a tenancy, or been employed. While having no credit isn’t a bad thing, it also doesn’t appeal to lenders because they have no indication of your financial competency, and you may find that you are subject to the same struggles for approval and higher rates as someone with bad credit.

While you might be able to find car loans with a no credit check policy, most lenders will want to see your credit history. Be wary of lenders that offer “no credit check” loans, as they may be a scam.

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Can I get a car loan with a guarantor?

If you are a student and looking to purchase a car, getting a guarantor car loan might be an option for you. Guarantor car loans are loans that are secured by someone who can guarantee to make the repayments if you default on your loan. Your guarantor will need to have a good credit rating to be able to secure your loan.

Guarantor loans might prove to be beneficial to those with little or no credit history, as it can make lower interest car loans more accessible to you. But, be sure to only apply for a guarantor loan if you know you can make the repayments, as you don’t want to leave someone else with your debt on their hands.

RateCity’s car loan calculator can help you and your guarantor understand how much your student car loan’s repayments are going to be. But perhaps more importantly, make sure you and your guarantor understand each other’s responsibilities and rights. 

How do I increase my chances of being accepted for a car loan?

You are more likely to be accepted for a loan if: Because:
You have a guarantor Having a guarantor reduces the risk to the lender if you default on payments, and will make them more likely to accept your application. 
You have a job Even part-time employment will show potential lenders 
You borrow less

Lenders are more likely to accept an application for a smaller loan, because it reduces the risk of you being unable to repay it in full.

Try to be realistic about your choice of car, or work towards saving a percentage of the cost yourself.

Did you know?

According to topuniversities.com, Australia has 12 universities in the global top 200 for earth sciences, and 13 for environmental sciences. Read about how many Australians are also now considering alternative fuels.

 

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Learn more about car loans

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

Can I get a car loan with bad credit?

Yes, you can get a car loan with bad credit, although you’ll probably find the process trickier and dearer than that experienced by people who have good credit histories.

You can find a number of lenders that specialise in bad credit car loans. However, make sure you compare bad credit car loans before you sign on the dotted line, because not all car loans are alike and having bad credit may mean you are more likely to be hit with higher fees and interest rates.

If you have bad credit, it’s important not to take out a car loan unless you can afford the repayments because a default could further damage your credit rating. Conversely, if you make all the repayments and repay the loan successfully, your credit rating might improve.

What is a guarantor on a car loan?

A guarantor on a car loan is a third party, usually a relative or friend, who guarantees to meet the repayments of a loan for the purchase of a car, if the borrower/owner of the car defaults on the loan.

Guarantor car loans can be useful for people who would otherwise struggle in being accepted for credit to purchase a vehicle. These may include people with bad credit, students and young people who may have no credit history, as well as some pensioners.

Many lenders offer guarantor car loans, guarantor personal loans and guarantor home loans, because of the significantly reduced risk to the lender.

Can I get a car loan with poor credit?

Poor credit doesn’t necessarily mean you won’t be able to get finance for your car purchase, though your options aren’t likely to be the same as someone with good credit.

In fact, a number of specialist lenders exist offering car finance for customers with poor credit, able to provide access to bad credit car loans.

However having a history of poor credit will likely mark you as a potential risk to lenders, so your car financing needs could see higher fees and interest rates. Alternatively, consider a secured car loan, which is a type of loan that uses the car you purchase as collateral, reducing the risk.

Other options include getting someone close to act as a guarantor for your car loan, or to talk to a broker about a personalised rate specific to your circumstances.

What is a guarantor car loan?

A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.

Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.

Do I need good credit to get a car loan?

You don’t need good credit to get a car loan, although the worse your credit history, the harder and more expensive it’s likely to be.

Some lenders will do business only with borrowers who have good credit. However, there are other lenders that are willing to offer car loans to borrowers who don’t have good credit. The catch, though, is that they may charge higher interest rates and fees, and also require more paperwork.

If you don’t have good credit and want a car loan immediately, you can search for lenders that work with bad credit borrowers. If you are able to wait, you can work to improve your credit score and then apply for a car loan once you have good credit.

Can I get a discounted student car loan?

Being a student is tough enough, and while you might find the odd student discount on movies and technology, the same can’t be said about car loans, as you can’t really get a discounted student car loan.

Lenders make money on the interest and fees that they charge with loans, and the lowest interest and fees are given to the most reliable credit holders: people with excellent credit history.

As a student, you are unlikely to have enough on your credit report to warrant an excellent history. There are however, ways of getting a lower interest car loan if you can’t get an interest-free loan from the bank of mum and dad. One way of doing this may be through getting a guarantor car loan, which can get you a secured car loan by setting your parents up as guarantors.

What is a bad credit car loan?

A bad credit car loan is a car loan for borrowers who have ‘bad credit’ or a bad credit history.

Some lenders refuse to offer bad credit car loans, because they believe there is an excessive risk that bad credit borrowers will not repay their loans. However, other lenders are willing to provide bad credit car loans.

Generally, these lenders charge higher interest rates for bad credit car loans than ‘prime’ car loans, reflecting the higher level of risk. Bad credit car loans may also have higher fees than prime car loans.

However, the big advantage of a bad credit car loan is that it allows borrowers with bad credit to access finance. Another advantage is that it could help bad credit borrowers improve their credit rating, assuming they make all their repayments on time.

Can I get a no credit check car loan?

You may be able to get a no credit check car loan in certain circumstances, although it’s important to weigh up your options before doing so.

Most lenders refuse to provide no credit check car loans, because they don’t want to give loans to borrowers without first confirming that they have a track record of repaying debts. So any lenders that do provide no credit check car loans would take measures to protect themselves against the risk of default.

That’s why no credit check car loans have higher interest rates than other car loans. Also, borrowers often have to provide security and put down a larger deposit.

Who provides bad credit car loans?

Lenders that provide bad credit car loans tend to be smaller challenger lenders rather than the bigger banks.

Bad credit car loans are a niche product. The bigger banks tend to focus on mainstream car loan finance for borrowers with better credit histories. That’s why smaller lenders tend to be the ones that provide bad credit car loans.

Bad credit car loans can have high interest rates and fees, so it’s important to compare options before submitting an application.

What are the pros and cons of guarantor car loans?

Like all things, there are positives and negatives to guarantor car loans, though one may outweigh the other depending on your needs.

Guarantor car loan pros may include that you’re more likely to be approved for a long if you have no credit or a history with bad credit, that you’re more likely to secure a car loan with a lower interest rate, and that because your guarantor car loan is based on a relationship, you will be more inclined to meet your repayment schedule.

However, there are negatives, as well. Guarantor car loan cons may include leaving a detrimental mark on a personal relationship with added strain if you don’t meet your repayments, and you may take out a loan that you can’t actually afford.

Weighing these pros and cons will give you a greater understanding of whether a guarantor loan is ideal for your circumstances.

Can I get a no credit check car loan?

Even if you have bad credit or no credit history there are loans that are available to you through specialised lenders. Some lenders in Australia advertise car loan offers without running credit checks, however, the Australian National Consumer Credit Protection act requires lenders to loan money responsibly, so credit checks are normally required by all responsible lenders. 

Do low interest no credit check car loans exist?

Some companies will advertise no credit check car loans, however under the Australian National Consumer Credit Protection act, credit checks are required by all responsible lenders, so such lenders are likely to have high interest rates. Depending on your income and credit history, you may qualify for a low interest StepUP loan from Good Shepherd Microfinance.

What is the role of a guarantor on a car loan?

The role of a guarantor on a car loan is to meet repayments if the borrower of the loan were to default for any reason, such as not being able to afford it.

Useful for loan applicants with poor or bad credit, a guarantor makes it possible for these loans to be made secure, because there’s less risk for a lender overall.

Companies will likely give fair warning before they charge a guarantor for the costs of the loan, or before they repossess anything of the guarantor’s that may have been used as security. Still, it is important for a car loan guarantor to fully understand their responsibilities before they commit to the transaction.