Many lenders extend offers for student car loans to graduating seniors. These loans provide a way for the graduate to begin their credit life and obtain a new or used vehicle. These offers are extended to students of all credit profiles, even those with bad or poor credit.
Understanding Credit
Understanding how credit works is important for all to know but especially students. Getting control of your credit early on helps in so many aspects of a student’s life, including finding employment, applying for law or medical school, purchasing a home or consolidating student loans. The mistakes that students make in managing their credit affect every aspect of their later life.
Students and their parents should request and review the annual free credit report provided under federal law by the 3 credit reporting bureaus. This report will help identify any vulnerability for the student, such as late payments, delinquencies and defaults. Those items that can be fixed should be addressed immediately and the report provides an excellent tool for the student to use in understanding their credit.
Paying Down Debt
A student may not understand when amassing credit card debt during school or taking out too many student loans that these activities affect their credit standing. Establishing a budget and attempting to reduce and eliminate some debts is critical in qualifying for a good student car loan. Managing a student’s finance is a responsibility of adulthood that affects the student’s ability to realize their dream of ownership, whether it is the purchase of a car or a home.
Applying for a Bad Credit Loan
For those situations where the student’s credit may not be easy to fix, there are lenders who may be sympathetic to their situation and provide a way to make financing available. The student should work with a lender that is willing to extend a loan to finance the purchase of vehicle on terms that are not exploitive of the student’s situation.
Unsecured Loans
In many instances, student car loans are unsecured or good faith loans. They are based on the student’s future earnings potential and for the lender, the chance to establish a relationship early enough in order to provide other financial products and services over the course of a relationship.
In providing a loan to a student with bad credit, the lender is betting on the student’s ability to resolve their financial situation early enough to prevent it from being a problem later on. Lenders that provide a financial counseling or other support program for student borrowers may ultimately be the best choice.
Evaluating Risk
Making student car loans to students with bad credit is a risk some lenders are willing to take. The trade-off for this level of credit risk is that the student will become better educated about their financial situation and through the second chance opportunity, change their habits. This leads to a win-win situation for both the lender and the student.
A student seeking a bad credit loan should work with a lender that provides a good support system, reasonable loan rates and terms relative the student situation, and offers incentives for the student to improve their credit situation.
