Sunday, June 10, 2012

New-Car Auto Loan Tips for Recent College Graduates

New-car auto loans can require a good credit score and high down payment. Recent college graduates often have neither of these things, so it can be hard to get a good auto loan for a young professional. Try these tips to get the best possible loan.


Protect Credit Early
Start early when it comes to protecting your credit. Many college students do not realize failing to pay utility bills or campus medical bills while attending school can drop a credit score. Even failing to return a video to the rental store can result in a dip. Start thinking about credit early, and work to avoid any negative reports while attending school. Even if you have high student loans or other debt problems, simply avoiding any missed payments can protect you from having negative information on your report.
Budgeting for a New-Car Auto Loan
Think about what you can afford when you purchase your car. You may have a salary for the first time, and to can be enticing to go buy a pricey car. However, you need to think about the other payment obligations you will have in the near future. To determine your budget, start by cutting your monthly salary in half. From this amount, subtract any debt payments you have, including your rent. Determine how much you will save each month, such as 5 percent or 10 percent of your paycheck, and subtract this amount. The resulting figure is the price you can pay monthly for your auto loan.
Selecting the Right Loan Terms
Once you know how much you can afford, you should think about the length of your loan. It is best to pay off a post-graduate college auto loan within 5 years. This will help you if you intend on buying a home in the future by reducing the possibility these two loans will overlap. Given the monthly payment you can afford and the length of your loan, you will know your ideal loan limit. This is the budget you need to use when you select a car. 
Looking for Incentives
Many lenders will offer you a discount as a recent graduate. However, the lender does not have an incentive to give you this discount unless you explicitly ask for it. Instead of approaching the lender as if you are a wealthy young person, it may be better to approach the lender as a recent graduate in search of a good deal. Ask the lender, especially if you are using a dealership loan, how they intend to help you get into the car you are looking to purchase. 
Avoiding a Cosigner
It is common for lenders extending financing to recent graduates to seek a cosigner on the loan. Lenders know college graduates are often connected with older individuals who have higher credit scores and incomes. A lender would much rather get one of these established borrowers on the hook for the debt than a young person who is less likely to be concerned with making payments. Do not agree to a cosigner unless you would otherwise be turned down for the debts.

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