Financing Your First Business

Obtaining An Auto Loan With Student Loans? It's Possible

28 September 2018

Jimmie Holland

College is an accomplishment, but for many, it will be a costly achievement. As a result, some people take out student loans to offset costs. Purchasing a car when you still have student loan debt seems impossible. Yet, student loans don't bar you from obtaining an auto loan. Learn what steps can improve your chances of approval for an auto loan even if you have student loan debt. 

Realistic Approach

Draft a detailed budget if you want to earn an approval for auto loans. Since you already have another loan obligation, you will need to purchase a car you can comfortably afford. If you choose a vehicle far outside your budget, you're more likely to get a denial. 

Write down your expenses, including your coffee habit, to see what you have left each month. When drafting the budget, don't just include the car payment. Owning a car also comes with insurance, maintenance, and fuel costs. You should be able to handle all these obligations and still have wiggle room. 

Debt-to-Income Ratio

Learn what your debt-to-income ratio is. A debt-to-income ratio is a comparison of the amount of money you have coming in relation to the amount of money you have to pay out. In simple terms, the ratio is income vs. expenses. Lenders want to see a healthy debt-to-income ratio to see that an applicant has more than enough money left over each month to handle additional expenses. 

Keep in mind, since you already have a student loan, your ratio may be higher than someone who doesn't have a loan. So, to keep your ratio more favorable, you might want to consider some adjustments. For example, you could move into a slighter less expensive apartment. 

Credit Rating

Find an outlet to check your credit rating. There are all sorts of free services where you can view this information, including many banking and credit card companies. Even more important than whether or not you have money left over in your budget for a car is your credit rating. Your credit rating tells a lender what type of financial habits you have: good or bad. 

Not only does the record determine your willingness to repay the loan, but your rating will also determine the interest rate at which you're charged. Even a single percentage point on the interest of loan could mean hundreds or thousands more in cost over the life of the loan. 

You can drive away with the car you want. Your student loan debt doesn't have to be a barrier. However, you do need to be prepared. Ensure you focus on these tips and take other measures to improve your chances of success.

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