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Updated on Thursday, October 11, 2018
When they first arrive in the U.S., many expats and international students pay cash to purchase cars because it seems like the easiest way to buy a vehicle in their new country. But you can finance a car as a noncitizen, an expat worker or an international student.
Lenders cannot discriminate against anyone based on citizenship. But they do determine a borrower’s creditworthiness. On the surface, it seems like a noncitizen is in the same position as any American borrower. But the truth is, you do have unique challenges in obtaining auto loans because of your credit (or lack thereof) and immigration status, which affects the loan terms and interest rates that you will get.
To help you make better borrowing decisions, we will go over the details that international students or expats in the U.S. need to pay specific attention to when it comes to financing a vehicle.
Things you need to know before taking a car loan
This will likely be your biggest obstacle because chances are you may not have had time to build a credit history in this country. Without establishing credit first, it’s extremely difficult for you to receive financing for a vehicle.
And even if you are deemed eligible for an auto loan, you may receive a far higher interest rate compared with those with a U.S. credit history.
When “ghosts” aren’t offered a loan due to lack of credit history, they need to have a cosigner who’s living in the country and has a U.S. credit history. The cosigner may not have to be a U.S. citizen. With a cosigner on your auto loan, your interest rate may not be as astronomical, but it will still be significantly higher than that of a borrower with healthy U.S. credit.
If you are going to live in the U.S. for a long time, it’s worth spending some time establishing or improving your credit score now so that you can refinance or qualify for a better APR on an auto loan later.
The length of your visa
When you arrive at a dealership, a dealer runs your Social Security number to check your credit, which will also tell the dealer who you are.
Another question is how long you will be allowed in the country. As a foreign national in the U.S., the loan term you will be eligible for has to be shorter than the period you’re allowed to stay in the country legally.
This means if your work visa is valid for three years, your auto loan will be three years or less. According to data from Experian, one of the three major credit reporting agencies in the U.S., the average car loan term Americans get is nearly six years.
To shorten the length of your auto loan, you either have to put down a larger down payment or pay higher monthly payments. On the bright side, your total finance charges over the life of the loan would be lower as a result.
International AutoSource, a service for expat car leasing, financing and rentals without a local credit history, advises expats and international students to provide a down payment of 10% to 20%.
The more you can put down on your car when you buy it, the better APRs you will likely be offered because it’s a less risky loan for the lender. To avoid depleting your savings, once you have done your research and finalized your vehicle decision, you probably want to save up for the down payment first, as well as run the numbers to make sure that the monthly payment will fit into your budget.
Where to shop for a car loan
Like buying anything else, you should always shop around for a car — and a car loan — comparing options and negotiating with sellers for a lower purchase price.
The most common way to get a car loan is to go through a dealership that acts as a middleman between you and the lender. You buy the car and fill out all the paperwork through the dealership. Your first contact with your lender would be about a few weeks after everything is signed, when you should expect to receive detailed information about your loan account.
You can also apply for an auto loan directly through banks, credit unions or finance companies online to avoid fees that you could otherwise incur with a dealership. Compare auto loans on LendingTree’s online exchange. MagnifyMoney is a subsidiary of LendingTree.
Services catering toward expats
There are also car financing services catering to your special needs as a non-U.S. citizen. Look for those services online and reach out to them for specifics.
International AutoSource, as we mentioned before, is an established car leasing and financing service specialized in working with foreign nationals. The company works directly with car manufacturers and allows expats without a credit history to take out auto loans. Its APRs range from 0.9% to 6%, depending on the vehicle, model and terms. For comparison, the APR for a 48-month auto loan can be as low as 3.44%.
Documentation non-U.S. citizens need to apply for an auto loan
Proof of identity
You can provide your passport. A green card, employment authorization card or a driver’s license will also do.
Lenders need to verify the length of your stay in the U.S. to determine your loan term. Your valid U.S. visa will help them determine the duration of your loan term.
Social Security number
To pull your credit history, a lender will need your Social Security number, name, address and date of birth.
Proof of residence
Your driver’s license usually works if your address on the license is current. Otherwise, you may show the dealer a piece of mail you have received recently that has your name and address on it, such as a utility bill or bank statement.
Proof of income and employment
Copies of your pay stub that is dated within 30 days and details the salary you’ve been paid year to date. You may also be asked to provide three months’ worth of pay stubs, bank statements, a verifiable offer of employment or an employment letter.
Proof of insurance
You are required by your lender to have auto insurance if you are to take a loan on a car. Check with your lender on exact coverage requirements, but most require that you have full coverage (liability and collision).
It’s a good idea to shop around for auto insurance before purchasing a vehicle. Get multiple quotes so that you know what to expect, even if you don’t know exactly which car you’re getting. It’s usually after you agree to buy a specific car, before you go in to sign the paperwork for it, that you will be asked to obtain full coverage insurance and have the company provide proof of insurance. You can call the company that previously gave you the best insurance quote and finalize the decision. The insurance company can send proof of coverage to the dealership, either by email or fax. The dealer should then give you and the lender each a copy.
If you’re buying a new car, you will need to obtain or complete a bill of sale, purchase agreement or buyer’s order that should include:
- Purchase price
- Vehicle identification number (VIN)
- Year, make and model
If you’re buying a used car, aside from the above information, you also need to provide the car’s mileage, original title and disclosure of any liens on the car. You can obtain such information from your seller.
A key takeaway
Before you decide to buy a specific car, you should determine whether financing is your best option based on your credit, your cash flow and how long you will stay in the U.S. If you are here only on a temporary assignment, maybe leasing a car would be a better solution. For example, Volvo has a special leasing program for international students. Once you decide that you want to finance a car, if you can’t qualify for a desirable APR due to the lack of credit, do the math and see if taking on an expensive loan makes economic sense for you. Consider getting a cosigner on your loan if you can. In some cases, when people are not in urgent need for a car to get around, it’s worth spending some time to improve your credit first and waiting to buy later.