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PublishedFebruary 16, 2023 | 5min. read
Article originally published November 17th, 2016. Updated February 16th, 2023.
As of late 2022, more than 42 million people are dealing with student loan debt in the United States, and the average balance per person is more than $37,000.
Those debts can impact personal finances in a number of ways. When you have to make student loan payments each month, you have less income for other expenses and loans. And if you don’t make your loan payments as agreed, those issues can drive down your credit score. Find out more below about how student loans can impact your ability to get a car loan to understand why you might have been denied a car loan because of student loans or whether that might be a potential outcome for you.
In This Piece:
- How Do Student Loans Affect Your Finances?
- How Do Student Loans Affect Getting a Car Loan
- Getting a Car Loan With Student Debt
How Do Student Loans Affect Your Finances?
Student loans can affect your finances in several ways:
- The need to repay them. Student loans typically require monthly repayments once you’re no longer in school, and that impacts your cash flow and reduces your disposable income. The average student loan repayment can be hundreds of dollars a month.
- Interest leads to larger expenses over time. Most student loans accrue interest, which increases the amount you have to pay back over time. If you’re not careful about the loans you take out, this can leave you making payments far into the future. That reduces the amount of money you have to save for the future, such as for a home, a car or retirement.
- Impact to your credit score. Late or missed student loan payments can negatively impact your credit score, making it harder to secure loans and credit cards in the future. On the flip side, when you make these payments on time, you can build up a positive credit history that includes a well-managed installment loan. That can help you improve your credit score and chances at loan approval.
- Qualifying for other loans. Having large student debt can make it challenging to qualify for different types of loans, such as a mortgage. That’s because mortgage lenders want to see that you have enough disposable income to afford your mortgage. According to the Federal Trade Commission, lenders like for your mortgage payments plus your other long-term debt payments—including student loans—to equal 36% or less of your total monthly income.
How Do Student Loans Affect Getting a Car Loan?
A student loan that is in good standing and paid on time is a good way to build a strong payment history. Payment history makes up 35% of your credit score, so good behavior when it comes to paying your student loans is a big plus for your credit. A good credit score can help you get approved for a car loan and get a lower interest rate, which means you pay less over the lifetime of the loan.
But the flip side is also true. If you are late or delinquent on your student loan payments, your credit score can take a nosedive. Andqualifying for an auto loan, even if you can afford the payments, can be difficult with lackluster credit. Even if you do qualify, the lender might hit you with a large interest rate or demand a larger down payment.
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FAQs
If you are late or delinquent on your student loan payments, your credit score can take a nosedive. And qualifying for an auto loan, even if you can afford the payments, can be difficult with lackluster credit. Even if you do qualify, the lender might hit you with a large interest rate or demand a larger down payment.
Can you have a car loan and a student loan at the same time? ›
While some student loans cover transportation and vehicle-related expenses, it's generally prohibited to use student loans to buy a car. It's also not a great idea to buy a car with a student loan since, unlike car loans, student loans take an average of 20 years to pay off.
Do student loans affect getting a loan? ›
Your student loan debt likely has an effect on your debt-to-income ratio (DTI), another number lenders use when determining whether to lend you additional money. Your DTI is calculated by dividing all your monthly debt payments by your total monthly income.
Why would you be denied for an auto loan? ›
An auto loan application may be denied because of your credit history or current financial situation. But by reaching out to your lender and improving your finances, you can work on building an application that won't be denied for a car loan in the future.
Can you buy a car with a defaulted student loan? ›
The default is reported to credit bureaus, damaging your credit rating and affecting your ability to buy a car or house or to get a credit card. It may take years to reestablish a good credit record. You may not be able to purchase or sell assets such as real estate.
Do student loans affect getting a car loan? ›
When you apply for any loan, including an auto loan, the lender will check your debt-to-income ratio. Borrowers with a lot of debt from credit cards, student loans, or other debt are considered riskier than those with a low debt-to-income ratio.
What is a good debt-to-income ratio for a car loan? ›
What is a high debt-to-income ratio?
| Debt-to-income ratio | Rating |
|---|
| 0% to 36% | Ideal |
| 37% to 42% | Acceptable |
| 43% to 45% | Qualification limits for many lenders |
| 50% and above | Poor |
Jan 4, 2024
Having a student loan will affect your credit score. Your student loan amount and payment history are a part of your credit report. Your credit reports—which impact your credit score—will contain information about your student loans, including: Amount that you owe on your loans.
Do student loans count in the debt-to-income ratio? ›
Student loans add to your debt-to-income ratio
DTI includes all of your monthly debt payments – such as auto loans, personal loans and credit card debt – divided by your monthly gross income. Student loans increase your DTI, which isn't ideal when applying for mortgages.
Is it hard to get a loan with student loans? ›
Student loan payments can have a negative impact on your debt-to-income ratio, or DTI, and how underwriters view your debt obligations. In short, if underwriters feel you won't be able to afford the monthly mortgage payment due to your student loans, they probably won't approve you for a home loan.
Still, you typically need a good credit score of 661 or higher to qualify for an auto loan. About 69% of retail vehicle financing is for borrowers with credit scores of 661 or higher, according to Experian. Meanwhile, low-credit borrowers with scores of 600 or lower accounted for only 14% of auto loans.
Why is my credit score at 700 but still rejected? ›
Your credit may not be high enough. It's also possible your score just isn't high enough to get approval for the specific card or loan you're applying for. Credit score scales usually range from 300 to 850. A score of 690 does technically fall into the good credit category but is on the low end.
Why is it so hard to get approved for a car loan? ›
Americans are having a harder time getting approved for auto loans, as banks worry over the risk of defaults at a time when high interest rates and elevated car prices are squeezing budgets. With borrowers struggling to make their monthly car payments, banks are responding by tightening credit standards.
Should I pay off my student loan before buying a car? ›
If you're on a fixed payment plan for your student loans and the interest rate is higher than the auto loan, paying down your federal student loan may make sense. In most cases, however, the increased flexibility of federal student loans makes them a reasonable debt to carry over a car loan.
What happens if you don't pay off student loans in 25 years? ›
Borrowers who have reached 20 or 25 years (240 or 300 months) worth of eligible payments for IDR forgiveness will see their loans forgiven as they reach these milestones. ED will continue to discharge loans as borrowers reach the required number of months for forgiveness.
What happens if I haven't paid student loans in 10 years? ›
Acceleration and Wage Garnishment: Once in default, the entire unpaid balance and interest are immediately due (acceleration). Your wages can be garnished without a court order, and tax refunds or Social Security benefits may be seized.
Can I have a personal loan and a auto loan at the same time? ›
Yes, you can still get a car loan if you have already taken a personal loan. However, the loan amount you are eligible for may be low in such a case. A lender decides your eligibility based on your credit history and repayment capacity.
Can I get a student loan if I already have a loan? ›
Whether you run into unexpected expenses or choose a more costly degree path, you may end up needing additional funding. It doesn't matter how many student loans you already have. The only thing that matters is whether you've reached the annual or the aggregate federal direct student loan limit.
Can you have two vehicle loans at the same time? ›
Yes, it is possible to have two car loans at one time, although there are certain factors you must consider beforehand.
Can I borrow more student loans than I need? ›
Remember, you can borrow less than your school offers and can request more loan funds later if you need to. You should borrow only what you need.
