There are many exciting firsts that take place in high school. Perhaps one of the most exciting is getting your first car. Unless your parents are well-off financially, or you have been working hard and banking all of your money, you may need a car loan.
Unfortunately, getting approved at this stage of your life can be difficult unless you meet several criteria, and you must be careful to keep yourself in a stable position financially.
Challenges You May Face
High school students will face three main challenges when looking for a car loan:
- Federally mandated age requirements
- Income requirements
- Lack of credit
In the United States, a lender may not enter into a legally binding agreement (i.e. car loan) with any individual under the age of 18. The exception may be an emancipated youth, but most banks will not recognize that distinction. Secondly, lenders want to see that a loan applicant has a gross monthly income of at least $1,400, or $350 per week. Thirdly, as a general rule of thumb, many lenders do not offer car loans to individuals who have never had a car loan in the past…a real catch 22.
Overcoming the Challenges
All of these challenges can be easily overcome by going to a single source…your family. Not for a cash handout, but for support. When you apply for a car loan as a teenager, even if you’re 18, most lenders are going to tell you that you need a cosigner. A cosigner must have sufficient income to cover the loan payment, a credit score above 680, and be willing to make the payments on the loan if you do not.
Your relationship to the cosigner is of no importance to the lender. So long as they meet the requirements as far as credit score, etc, they can be a friend, family, or total stranger. The key is that they sign the papers taking legal responsibility for the loan.
However, from a personal standpoint, this is a very important relationship. You must keep in mind that the person cosigning your loan will be responsible if you miss payments, and their own credit score is on the line as well. You need to ensure that both parties fully understand the responsibilities involved, as you don’t want this legal contract to spoil your personal relationship with a friend, sibling, or parent.
No Cosigner Available?
You still have options if you do not have a cosigner on tap. Unfortunately, they mainly involve waiting until you are at least 18, since you cannot even have a car titled into your name until you then. While you are waiting, look for a better paying job, take on extra hours, and save all of your money. Once you turn 18, apply for a credit card. Even if you have to get a secured credit card, making your payments and keeping your balance under 30 percent of the credit limit will boost your credit score, reducing the chance you may need a cosigner.
Teen Car Loans with No Credit?
Another way to reduce the chance you will need a cosigner is to apply for a ”no credit car loan” through a specialty lender. Many of these lenders operate online only so they can offer loans to a wider set of credit scores and people who have never had a car loan in the past. This also allows them to skip the need for a cosigner more often. Not in every instance, but more often than with large traditional lenders. These lenders also consider gross incomes as low as $1,250 per month. They are still bound by the legal requirement to offer car loans to teens who are 18 or older, though.
Go here to submit your application. We will work to match you with a local finance specialist who can guide you through the process, helping you get approved for the funds you need.