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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.
Student loans can affect your finances in several ways:
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. 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.
Lenders also consider your debt-to-income ratio when you apply for an auto loan. If the auto loan payment, or your overall debt, is a large enough percentage of your income, you might get turned down for the loan or be asked for a larger down payment to qualify.
The same is true if your credit utilization rate is high. Credit utilization is how much debt you are carrying versus how much credit has been extended to you, and it’s the second most important factor when it comes to credit. You generally want to keep your credit utilization ratio less than 30% for the most positive impact to your credit score.
It’s certainly not impossible to get a car loan with student loan debt. Here are some things you can do to make an approval more likely:
Learn about options for bad credit. If you’ve struggled with your student loans in the past and negatively impacted your credit with some common student loan mistakes, you may still have some options. Learn about buying a car with bad credit.
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