How Student Loan Debt Can Make Auto Loans Unaffordable


How Student Loan Debt Can Make Auto Loans Unaffordable

Student loans are a huge financial burden for many people these days. Tuition keeps going up while wages stay flat, so students have to borrow more and more money to get through school. By the time they graduate, many have tens of thousands of dollars in student loan debt. This can make it really tough to get approved for other kinds of loans, like auto loans. Here’s an in-depth look at how student debt can impact your ability to get an affordable car loan.

The Rising Costs of College

Over the past few decades, the cost of attending college has absolutely skyrocketed. Tuition and fees at public four-year colleges have more than tripled since 1987, even after adjusting for inflation[1]. At private non-profit colleges, costs have more than doubled during the same time period[1]. This means students have to borrow way more money than previous generations did.

The average student loan debt for bachelor’s degree recipients is now around $30,000[1]. That’s a huge burden to carry right out of school when you’re just starting your career and not making much money yet. Many graduates struggle to keep up with their monthly payments, which can hurt their credit and make it harder to qualify for other loans like auto financing.

How Student Loans Impact Your Debt-to-Income Ratio

Lenders look at your debt-to-income ratio (DTI) when deciding whether to approve you for a loan and what terms to offer. DTI measures how much of your gross monthly income is already going towards paying debts. Most experts recommend keeping your DTI below 36% [2].

Student loans count toward your DTI, just like credit cards, mortgages, and other installment loans. When you have a high student loan balance with big monthly payments, it makes your DTI shoot up. This signals to lenders that you’re already stretched thin financially. Even if you have a decent income on paper, too much existing debt can make you look like a risky borrower.

Strategies for Managing Student Loans When Buying a Car

If you have a lot of student loan debt, it can definitely make getting approved for an auto loan more challenging. But it’s not impossible with the right strategy. Here are some tips for managing student debt when saving up to buy a car:

  • Make payments on time. This protects your credit score, which is a key factor in loan approval.
  • Pay extra towards student loans if possible. This lowers the balances faster so they impact your DTI less.
  • Ask about income-driven repayment plans for federal loans. These base payments on your income and can provide some relief.
  • Consider refinancing private student loans at a lower interest rate. This cuts monthly payments.
  • Save up a larger down payment for your car. At least 20% is ideal. This keeps the auto loan balance and payments lower.
  • Shop around for the best auto loan terms. Compare offers from banks, credit unions, and dealers.

The Downsides of Auto Loans with Existing Student Debt

While getting approved for an auto loan is possible even with student debt, it likely won’t be easy or cheap. Here are some potential downsides to watch out for:

  • Higher interest rates – Lenders may charge higher rates due to your existing debts.
  • Larger down payment requirements – You may need to put more money down upfront to get approved.
  • Shorter loan terms – Your loan may have a shorter term, meaning higher monthly payments.
  • Lower loan amounts – Lenders may cap how much you can borrow to keep payments manageable.
  • Tough approval – You may get turned down by lenders if your DTI is too high.

The Vicious Debt Cycle

As you can see, student loan debt can make getting an auto loan much more difficult and expensive. But ironically, not having a car or relying on old, unreliable vehicles can also negatively impact your finances in the long run. It can prevent you from accessing higher-paying jobs that require a car for commuting. Owning a newer car with modern safety features can also lower your auto insurance premiums.

When you don’t have reliable transportation, you may have to turn to options like:

  • Costly auto repairs on an older vehicle
  • Paying for rides from others
  • Renting vehicles for basic needs
  • High-interest subprime auto loans or leases

As you can see, not having a decent vehicle can drain your budget almost as much as having a car loan. This vicious debt cycle makes it really hard for student loan borrowers to get ahead financially.

Light at the End of the Tunnel

The good news is the auto and student loan industries are both aware of this issue and are trying to help. Here are some positive trends that could benefit future graduates:

  • Income-share agreements – These base student loan payments on post-grad income, reducing default risk.
  • Employer student debt assistance – More companies now offer benefits like matching payments.
  • Improved loan counseling – Schools are getting better at advising students on wise borrowing.
  • Auto loan relief programs – Some lenders work with borrowers to lower payments if needed.
  • Down payment assistance – Non-profits provide grants to subsidize auto down payments for lower-income buyers.

With creative solutions like these, the hope is that future generations will have an easier time managing student debt and affording major purchases like cars.

The Bottom Line

Student loans can make getting approved for an auto loan much more difficult and expensive. Having high monthly payments and balances hurts your debt-to-income ratio, which lenders look at closely. This leads to higher interest rates, larger down payments, and overall tougher loan terms. But proper planning and smart financial moves can help you manage student debt more effectively when saving up to buy a car. With some discipline, it’s possible to break out of the vicious debt cycle and get your finances headed in the right direction.


[1] CNBC



Delancey Street is here for you

Our team is available always to help you. Regardless of whether you need advice, or just want to run a scenario by us. We take pride in the fact our team loves working with our clients - and truly cares about their financial and mental wellbeing.

"Super fast, and super courteous, Delancey Street is amazing"
$125,000 Small Business Loan
"Thanks for funding me in literally 24 hours"
$35,000 Lawsuit Advance
"Great choice for first time fix and flippers"
$250,000 Hard money Loan

In The Media

Delancey Street CEO discusses ways to reward employees
Delancey Street CEO discusses the benefits of franchising on Forbes.
Delancey Street CEO discusses management on AMEX.
Get Out of Debt
Credit Card Debt Relief
Marital Debt Relief

Managing Marital Debt: Strategies for Financial Freedom Marriage can be…

Private Student Loan Debt Relief

Managing Private Student Loan Debt: Options for Relief Private student…

Veteran Debt Relief

Helping Veterans Find Financial Freedom Being a veteran comes with…

Delancey Street understands funding like no one else!
Steven Norris
Get Funding Today

Ready To Get Started?

If you have questions, feel free to shoot us an email, or fill out our live chat.

Apply Now