Refinancing Student Loans Before Buying a Car: Things to Consider

Can you use student loans to buy a car? No, education loans can only be used for authorized educational expenses, such as tuition, books, supplies, transportation expenses, meals, and housing. Buying a car doesn’t count as a qualified educational expense.

So you can’t use a student loan to buy a car, but you can refinance student loans for a lower monthly payment that may allow you to afford new expenses each month. Getting a lower monthly payment on your student loans can improve your debt-to-income ratio (DTI). 

Lowering your monthly payment can help you save for a down payment on a car, while improving your DTI may help you qualify for auto loan financing. Below we highlight the pros and cons of refinancing student loans to buy a car.

Refinancing Student Loans to Afford a Car

You may ask, “Can I get a car loan with student loans?” The answer is yes, borrowers with outstanding student debt may still qualify for auto loan financing. Lenders may want to review your credit history and debt-to-income ratio to determine whether you can afford a car loan.

You can’t use a student loan to buy a car, but refinancing student loans for a lower monthly payment may allow you to afford new expenses each month. You may use a refinancing student loans car financing strategy if you’re a student loan borrower looking to buy a car.

Lowering Monthly Payments

As mentioned above, refinancing student loans for a lower monthly payment may allow you to afford new expenses each month. Some of the potential benefits of refinancing your student loans for a lower monthly payment may include the following:

• Your debt-to-income ratio may improve

• Improving your DTI may help you qualify for auto loan financing

• Your lower student loan payment may help you save for a down payment on a car or an outright cash purchase of a new or used vehicle

Advantages of Refinancing Student Loans to Purchase a Car

As mentioned earlier, you may use a refinancing student loans car financing strategy if you’re a student loan borrower looking to buy a car. Below we highlight some of the advantages of refinancing student loans to purchase a car:

Can Help You Become a Car Owner

You may wonder and ask, “Can I get a car loan with student loans?” The answer is yes, borrowers with outstanding student debt may still qualify for auto loans. Refinancing your student loans for a lower monthly payment can help you save for a down payment on a car.

May Qualify for Better Car Financing Terms

Can you use student loans to buy a car? No, but student loan refinancing may improve your DTI, which may help you qualify for auto loan financing that’s right for you.

Disadvantages of Refinancing Student Loans to Purchase a Car

Below we highlight some of the disadvantages of refinancing student loans to purchase a car:

May Impact Your Debt Relief Options

There are several pros and cons of refinancing federal student loans. Any portion of your federal student debt that you refinance loses its eligibility for Public Service Loan Forgiveness and federal income-driven repayment (IDR) plans. 

Private and nonprofit student loan refinance companies generally have no obligation to forgive your student debt.

Interest Costs May Increase

Your total interest costs may increase if you refinance for a longer term. You can lower your monthly payment by refinancing for a longer term, but you may end up paying more interest charges over the life of your loan. This can leave you with a more expensive loan and a vehicle that may experience car depreciation.

Leasing vs Buying a Car With Student Loans

You may consider leasing vs. buying a car. Auto leases typically include lower monthly payments than auto loans. A lease gives you temporary access to a car but doesn’t give you any ownership or equity stake in the vehicle.

If you’re looking to save money on a car, you can negotiate with a car dealer or private seller for a deal that’s right for you.

Refinance Student Loans with Lantern:

Student loan refinancing may be right for you if you can lock in a lower interest rate over the life of your loan and acquire favorable terms.

If you’re struggling with paying off your student loans, there are options:

• Refinance student loans for a lower interest rate if you qualify

• Request a student loan deferment

• See if your workplace offers employer student loan repayment assistance

If you’re interested in student loan refinancing, Lantern by SoFi can help.  

Find refinance options with Lantern.