Navigating Car Finance Options: A Comprehensive Guide for International Students

For international students, securing reliable transportation is crucial for academic success, work, and personal life. While public transportation and ride-sharing services can be sufficient initially, there often comes a time when owning a car becomes a necessity. This article provides a comprehensive overview of car finance options available to international students, helping them make informed decisions about vehicle ownership in a new country.

When and Why Do You Need a Car?

One of the first questions you might ask yourself is, "Do I need a car as soon as I land in the US?" The answer is typically no. Many international students, especially those pursuing master's or PhD degrees, hold off on buying a car until it's absolutely necessary. For example, PhD students who have a stable stipend might buy a car in their first semester, but most master's and bachelor's students wait until they secure an internship or a full-time job. Public transportation, ride-sharing apps like Uber and Lyft, and campus shuttles can be sufficient for getting around initially.

However, if you find yourself in a situation where public transportation is inefficient or expensive, or if your daily commute becomes too challenging, it might be time to consider getting a car. The key is to evaluate your needs versus the costs associated with owning a vehicle. If the total cost of car ownership (monthly payments, insurance, gas, maintenance) is less than what you'd spend on public transportation and Uber, then buying a car makes sense.

Need vs. Want

As an international student, it's crucial to distinguish between your needs and wants when it comes to purchasing a car. This decision can significantly impact your financial health and overall student experience. Before making a purchase, ask yourself if you truly need a car or if you simply want one. Your priority might be to pay off student loans quickly, which could influence your decision. Make an informed choice that aligns with your financial goals and lifestyle. Ask yourself these questions:

Is public transportation insufficient for my daily commute?
Will I be interning or working in an area that requires personal transportation?
Are ride-sharing services like Uber or Lyft more expensive in the long run than owning a car?
Do I need a car for essential activities like grocery shopping or medical appointments?

If you answered yes to most of these, you likely need a car.

Buying New vs. Used

The decision to buy a new or used car is influenced by various factors, including budget, reliability, and personal preference. Here’s a deeper look into both options:

New Cars

New cars come with the advantage of modern features, warranties, and often lower interest rates on financing. Manufacturers like Toyota and Honda frequently offer special deals with low to zero percent interest rates, especially towards the end of the year. A new car ensures you’re the first owner, and you won’t have to worry about previous wear and tear. Plus, new cars come with the latest safety features and technology, providing peace of mind.

Used Cars

On the other hand, used cars can be significantly cheaper, which is a major advantage for students on a budget. However, it’s important to do thorough research. Factors like the year of manufacture, mileage, and condition of the car play a crucial role in determining its value. In recent years, due to supply chain issues, the prices of used cars have sometimes been higher than new ones, so always compare current market prices before making a decision.

Consider your financial situation and your needs carefully. If you find a well-maintained used car with low mileage at a good price, it might be a great deal. Conversely, if the difference in price between a new and used car isn’t substantial, the benefits of buying new could outweigh the savings of buying used.

SUV vs. Sedan

The choice between an SUV and a sedan depends largely on your lifestyle and preferences:

SUVs

Sport Utility Vehicles (SUVs) are versatile and practical, especially if you need to transport larger items or often travel with friends or family. They offer more cargo space, higher ground clearance, and a generally safer driving experience, particularly in adverse weather conditions like snow or heavy rain. If you enjoy outdoor activities like camping or frequently moving apartments, an SUV might be the better choice.

Sedans

Sedans, on the other hand, are typically more affordable, offer better fuel efficiency, and provide a smoother driving experience. They are easier to handle in urban environments and usually have lower maintenance costs. If your primary use for the car is commuting and running errands, a sedan might be more economical.

Make a list of your daily activities and future plans to see which type of vehicle suits you best. While SUVs provide more utility, sedans are cost-effective and efficient.

Where to Buy Your Car

Finding the right place to buy your car is as important as deciding what car to buy. Here are some options:

Friends & Family

Buying from someone you know can be beneficial as they might offer you a good deal. However, always verify the car’s condition and price using resources like Kelley Blue Book. The downside is that these transactions typically don’t build your credit history.

Dealerships

Dealerships offer both new and certified pre-owned cars. While they provide warranties and financing options, the buying process can sometimes be overwhelming due to high-pressure sales tactics. However, their prices can be higher, and financing rates might not be as favorable. Read reviews and compare prices before making a decision.

Rental Companies

Companies like Hertz and Enterprise sell their used rental cars at competitive prices. These cars are often well-maintained and come with detailed service histories. This option can provide good value for money.

Private Sales

Buying directly from an individual can save you money, but always insist on a pre-purchase inspection by a professional mechanic to avoid hidden issues.

Financing Your Car

Understanding car financing is crucial to avoid overpaying. Here are some key points to consider:

Pre-Approval

Getting pre-approved for a loan from your bank or credit union can give you an edge in negotiations and help you understand your budget.

Interest Rate & Loan Term

Lower interest rates are better, and shorter loan terms reduce the total interest paid. Compare offers from different lenders to find the best deal.

Down Payment

A higher down payment reduces the amount you need to finance, which can lower your monthly payments and the total interest paid.

Refinancing

If you initially get a high-interest loan, you can refinance it later when your credit score improves to secure a lower rate.

Financing terms can be complex, but understanding these basics will help you make an informed decision. Always read the fine print and ask questions if you’re unsure about any aspect of the loan.

Should You Buy or Lease?

Both buying and leasing have their pros and cons:

Buying

Owning a car gives you the freedom to drive as much as you want and make any modifications. It involves higher upfront costs and ongoing maintenance but builds equity in the vehicle.

Leasing

Leasing can be attractive due to lower monthly payments and the option to drive a new car every few years. However, leases come with mileage limits and don’t build equity.

Consider your long-term plans and financial situation. If you plan to stay in the US for a few years and want to avoid the hassles of selling a car, leasing might be a good option. If you prefer ownership and plan to keep the car for many years, buying is the better choice.

Understanding Car Loans for Students

Car loans for students typically have a similar process as any other car loan but may feature some additional caveats. Understanding how auto loans work and the costs associated with borrowing can go a long way toward your decision to apply for a car loan, especially if this is your first time buying a car. As a student, you could be facing a plethora of expenses you aren’t used to managing. Dining hall passes, room and board, tuition and books are all costs that can add up quickly - how would adding an additional monthly payment impact your budget?

When weighing your options, consider asking yourself how important it is for you to have access to a vehicle. For instance, if you work off-campus, having a vehicle may be essential to get to your job. If you work on-campus or are focused solely on your studies, a car may be optional. Do you have reliable public transportation available? Could you use a bike or walk instead of driving?

Keep in mind that the monthly cost of your auto loan is only one variable in the total cost of a vehicle. You will also want to factor in how other expenses such as, but not limited to, gas, insurance and maintenance will fit within your budget.

How Auto Loans for Students Work

Car loans for students work largely the same way as car loans for anyone else. When you take out an auto loan, you sign a contract to borrow a fixed amount of money from a lender and repay them, with added interest, in monthly payments throughout the term of the loan. If you’re approved for an auto loan, your monthly car payment has these features and associated costs:

Principal: The total amount you’re asking to borrow to purchase a vehicle, which may be the full vehicle price or a portion of it if you plan to make a down payment.
Interest: The rate charged on the principal amount you borrow, set by your lender. Higher interest rates typically translate to a higher monthly payment, and lenders look at variables such as your credit history to determine your rate.
Loan term: The length of your auto loan, typically expressed as the number of months you’ll be paying down your loan (for example: 36 months, 48 months, 60 months etc.)
Fees and taxes: Any fees and taxes associated with the sale, such as dealer’s administrative fees, registration fees and sales taxes. You may have the option to tack these onto your financing or pay them upfront. If you choose to lump them onto your monthly payments, be aware that you’ll now be paying interest on these costs on top of your principal.
APR (Annual Percentage Rate): This represents the total cost of borrowing, including certain fees, expressed as an annual rate. Note: There is a difference between interest rates and APR, and taking the time to understand how APR is calculated can be beneficial to understanding your potential total cost.
Insurance: Although insurance is technically separate from your monthly car loan payments, your loan may impact your insurance cost. That’s because lenders may require you to get additional coverages like comprehensive insurance, which can add an extra cost to your budget.

It additionally is worth remembering that car loans for students are secured loans that use your car as collateral, so before signing on the dotted line, you may want to be sure your monthly payment fits into your budget. Missing payments could cause your lender to repossess the car if you fall behind.

Unique Challenges Students Face

While there may be car loans out there that are geared toward college students, you could face some hurdles since auto loan lenders typically look at credit score and income as primary factors in their decision. If you’re trying to get a car loan as a student, you may not have had time to build up your credit or have much employment history as you focus on your studies. While this might play a role in your ability to qualify for an auto loan, there are steps you can take to improve your chances. Either way, you may face some of the following issues:

Limited credit history: Financial institutions want to be reasonably confident that you’ll pay your loan in a timely manner. Because of this, credit scores are an important factor in your loan eligibility. As a student, you may have never used credit before, or you might not have enough credit to establish a consistent payment history to lenders.
Income limitations: As a student, you may have a part-time or full-time job, or be focusing solely on your studies. Either way, you might find yourself with minimal income - which could be an issue since it’s a factor that lenders use to determine your financing eligibility. When looking at car loans for students with low income, current employment and employment history are both usually considered. Having a low income along with a short employment history may potentially affect your chances of approval.
Potential for higher interest rates: Typically, car loan applicants with stronger credit scores and employment history receive lower interest rates. As a result, car loans for college students may be tied to higher interest rates which have the potential to make your monthly payments higher.

Additional Tips for Getting a Car Loan as a Student

Although there can be some unique challenges to getting a car loan as a student, it’s certainly not impossible. Luckily, there are actions you can take to improve your chances of approval or to reduce your monthly payment. Here are some tips to improve your chances of getting a car loan as a student.

Look into student car loan programs: It may benefit you to shop around and see if any lenders offer discounts or incentives to current or recently graduated students. Whether it’s a rebate or a lower interest rate offer, it might prove useful to research and see what you’re able to find.
Build your credit: Establishing a healthy credit score isn’t something you can do at the snap of your fingers - it can take some time, especially as a young adult. You may be able to buy a car with bad credit, but taking steps to improve your credit can go a long way in improving your financing options for the long run.
Improve your grades: Some car lenders may offer a student discount on your interest rate or total monthly payment if you keep your grades above a certain threshold. For this type of discount, your lender may request your transcripts each semester to see if your grades have changed.
Make a large down payment: The more you put down as a down payment, the less you’ll need to borrow, which may increase your likelihood of getting approved for a car loan as a student.
Consider a more affordable vehicle: Since your principal amount is included in your auto loan calculation, finding a less expensive car and lowering the amount you’re borrowing may improve your approval ability and lower monthly payments. Consider ways to find an affordable car, or look into buying a used car vs. a new one.
Consider a co-signer: You may not be able to qualify on your own for an auto loan despite your best efforts to improve your financing chances. In this case, you might be able to secure a co-signer who agrees to repay the debt if you’re unable to. Keep in mind, your co-signer's credit will be on the hook just like yours, and your actions may directly impact them if you miss monthly payments.
Establish a steady income source: A lender is less likely to grant you a loan if you’re unable to prove you can afford it.
Check your credit history: As an international student, you may not have any credit history or social security number. However, lenders may still check your credit file to see if you have any negative remarks (like bankruptcy or debts in collections) in your credit history.
See if you prequalify: Last, you can check to see if you can be prequalified for financing. When you’re prequalified, lenders provide an estimate of what you may qualify for and what your monthly payment might look like based on your financial details. This can be useful to see if getting a car loan as a student is a feasible option for you. Just remember that prequalification doesn’t equate to approval, and you’ll still need to formally apply with your lender. Additionally, you could use a car payment calculator to check your potential financing options and get an idea of what you may be paying monthly.

Volkswagen Programs for International Students and Foreign Business Professionals

Volkswagen offers specific programs tailored for international students and foreign business professionals to facilitate car financing or leasing. These programs recognize the unique circumstances of individuals who may not have an established credit history in the United States.

International Students Plan

Eligible Vehicles: Any new and pre-owned Volkswagen vehicles, including Volkswagen Certified Pre-Owned vehicles (for retail financing only).
Eligible Programs: Retail Financing, Driver's Option, and Leasing.
Requirements:
- Current I-20 form (Certificate of Eligibility for non-immigrant Student Status).
- Copies of three months of bank statements or other documentation that substantiates stability of funds flow over time.
- Must provide phone number of school's Registrar's Office.
- Confirmation from school showing anticipated graduation date.
- Confirmation of residence and telephone prior to approval.
- Copy of Visa showing expiration date (with photo blacked out).
- Lease or loan maturities will be limited to the anticipated graduation date as stated on the I-20 form documentation furnished by the applicant's school.
- Qualification under this program is subject to verification prior to approval.
- Social Security # not required.

Foreign Business Professionals Plan

Eligible Vehicles: Any New and Near New Volkswagen (see Near New Vehicle Definition), including Volkswagen Certified Pre-Owned vehicles (for Retail Financing only).
Eligible Programs: Retail Financing, Driver's Option, and Leasing.
Requirements:
- Letter from employer stating applicant's position, hire date, income and length of stay in the United States. Applicant must provide a contact name and phone number for someone in the Payroll or Human Resources Department of the applicant's employer or future employer.
- At the time of the credit decision, a copy of the applicant's United States Social Security card or copy of a letter from the Social Security Administration including the assigned Social Security number. This must be provided at the time of application
- Copy of Visa with expiration date (with picture blacked out). shown on the applicant's employment letter, employment contract, Permanent Resident Card, or I-94 form in order to determine the specific finance terms
- Monthly payment may not exceed 25% of the gross monthly income
- Minimum gross income of $45,000 per year
- Verification of residence and phone number.

Additional Costs of Car Ownership

Owning a car involves more than just the monthly payments. Be prepared for these additional costs:

Title Fees & Taxes

When purchasing a car, you must pay title fees to the state to officially register the car in your name. This cost varies by state but can range from $50 to $300. Additionally, you’ll need to pay sales tax on the vehicle's purchase price, which can range from 6% to 10% depending on your location. For example, on a $20,000 car, this could add up to $2,000.

Registration Fees

These are annual fees required to keep your car legally registered. The cost depends on your state and can range from $50 to $300 per year. Some states also require emissions testing or vehicle inspections, adding to the yearly costs.

Insurance

Car insurance is a significant ongoing cost and varies based on factors like your age, driving history, location, and the type of car you drive. New drivers or those with no US driving history may face higher premiums. Comprehensive insurance, which covers a wide range of incidents, is more expensive than liability-only insurance. Expect to pay anywhere from $100 to $200 per month for comprehensive coverage as a new driver.

Maintenance & Repairs

Regular maintenance is necessary to keep your car in good condition and can include oil changes, tire rotations, and brake inspections. Costs vary depending on the car and service provider. For instance, an oil change might cost $30 to $70, while more extensive maintenance could cost several hundred dollars. Additionally, unexpected repairs can add up, so it's wise to budget for these potential expenses.

Gas

Fuel costs depend on your car’s fuel efficiency and how much you drive. Prices vary by state, with places like California being more expensive than others. On average, you might spend $50 to $100 per month on gas, but this can be higher if you drive frequently or have a less fuel-efficient vehicle.

Parking

If you live in a city, you may need to pay for parking at your residence or workplace. Monthly parking fees in urban areas can range from $50 to $300 or more.

Tolls

If you drive on toll roads, bridges, or tunnels, these costs can add up, especially if you commute daily. Use tools like E-ZPass to manage and reduce these expenses.

Budgeting for these expenses is essential to avoid financial strain. Planning for these costs will help you manage your finances better and prevent unexpected financial burdens.

Credit Unions as an Alternative to Banks

For international students, University Credit Unions (UCU) can be a better choice than traditional banks like Bank of America, Chase, or Wells Fargo. While banks and credit unions offer similar products and services, a bank's mission is to enrich its shareholders. In contrast, a credit union is a not-for-profit financial institution owned jointly by you, our member-owners. All earnings are funneled back into our financial cooperative and with your participation and relationship we provide member-owners unparalleled benefits.

Membership Requirements for University Credit Unions

To join a University Credit Union, you typically need:

Current Valid ID:
- Unexpired Passport
- Government-issued driver's license (including foreign license)
- Consular ID (including Mexican Matricula ID)
- Birth Certificate
Proof of Eligibility: This may be required in some instances, depending on the credit union's specific requirements.

UCUs often offer membership to employees, students, and alumni of specific universities and colleges.

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