Car loans for students: Can you get one?

Written by: Jennifer Brozic
• Updated •5 min read
Group of 3 students standing together and laughingImage: Group of 3 students standing together and laughing

In a Nutshell

It’s possible to get a car loan as a student if you have a good credit history and reliable income. If not, you may have trouble getting approved. Fortunately, there are steps you can take — such as adding a co-signer and saving for a down payment — that can help improve your chances of qualifying.
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Getting a car loan as a student is possible, but you may face some challenges that other borrowers might not have to deal with.

Before you decide whether a car loan is right for you, let’s explore how they work, some of the challenges you may face when applying and what you can do to improve your chances of getting approved.

How does a car loan work?

Car loans are closed-end loans. That means you’ll borrow a fixed amount of money to finance your car purchase and then repay it, with interest, in equal monthly payments for the life of the loan. Longer loan terms can mean a lower monthly car payment (but more interest paid overall). Shorter loan terms can mean a higher monthly car payment (but less interest paid overall).

An auto loan is also a secured loan, meaning your car is used as collateral. So if you don’t make your payments on time and end up defaulting on your loan, the lender typically has the right to repossess your car as payment for the outstanding debt. That’s why it’s important to make sure you can afford your loan payments, on top of your other expenses, before applying for a car loan.

The true cost of owning a car

Challenges to getting a student car loan

Many college students are just beginning their journeys to financial independence. So it can be difficult to qualify for traditional auto loans and student car loans alike. Here are a few roadblocks you might encounter during the application process.

Limited credit

Before approving you for a loan, financial institutions want to be reasonably confident you’ll repay it on time. That’s why lenders look at a variety of factors, including your credit history before making a loan decision. And since most lenders will check your credit when deciding to give you a loan, it’s a good idea to know where your credit stands before applying.

If you’ve never used credit before, or you don’t have enough credit to have established a consistent payment history, lenders may be less willing to approve your application for a traditional auto loan.

The good news is that some car loans for students offered are designed for individuals with a limited credit history. Instead, certain lenders offering student car loans might focus on other factors, like employment and GPA.

Limited income

Although some college students work full-time jobs while attending college, it’s not unusual for many students to have inconsistent or no income. But your ability to repay a loan is one of the factors lenders consider when deciding whether to lend you money. Without a consistent, reliable income, it might be tough to be approved for either a traditional or a student auto loan.

High interest rates

Applicants who qualify for the lowest interest rates are typically those with a strong credit history and high credit scores. If your credit history is limited or you have bad credit, you may not qualify. And if you do qualify, your loan’s interest rates will likely be higher, which could make it difficult to afford the loan.

When you’re shopping around, look for lenders that offer discounts for being a student or maintaining a certain GPA. It could help you save money on interest charges.

Maximum loan amounts

Some lenders offering student car loans cap the loan’s amount. Maximum amounts for students may be around $15,000 to $20,000, which could limit the type of car you can buy — unless you have a hefty down payment saved up.

Improving your chances of getting approved for a car loan

Although you may have a tough time qualifying for a car loan, there are things you can do to help improve your chances.

Get good grades

Like we mentioned, some student car loan lenders offer discounted interest rates if you keep your grades up. But other lenders might check your GPA when reviewing your loan application.

So if you’re in the market for a car, hitting the books could pay off.

Build your credit

Establishing a strong credit history takes time. Fortunately, financial institutions offer products — like credit-builder loans and secured credit cards — designed to help people establish or rebuild their credit. Payments on these types of loans are typically reported to the three major consumer credit bureaus each month (but make sure to check with your lender).

With consistent on-time payments, you can establish a pattern of positive borrowing, which may improve your chances of being approved for an auto loan down the road.

Becoming an authorized user on someone else’s credit card may also help you build your credit. That’s because their use of the card may be reported to the credit bureaus for you as well. Before becoming an authorized user, check with the credit card issuer to see if they report for authorized users.

Take note: Even if the card does report for authorized users, it can only help you if the card’s owner makes their payments on time and stays well below their credit limit.

Save for a down payment

The more money you have saved for an auto down payment, the less you’ll need to borrow to purchase a car. Starting out with a smaller loan means your monthly payments may be more affordable. Plus, some student car loan lenders require you to make a minimum down payment, which can range from 10% to 25%. Consider saving as much money as you can before you start shopping around.

Secure a steady income source

Even if you have good credit, a lender is unlikely to grant you a loan if you can’t afford it. Lenders want to see that you make enough money to repay your loan on time, while meeting your other debt obligations.

Consider a co-signer

If you’re unable to qualify for an auto loan by yourself, you may be able to secure one if you have a co-signer. A co-signer is someone who agrees to repay the loan if you’re unable to, which means their credit is on the line just as much as yours is — not something to take lightly.

Bottom line

It’s possible to get a student car loan. But if you don’t have an established credit history and steady source of income, it might not be easy.

Take some time to shop around. Loan requirements and interest rates vary from lender to lender. Doing your research could help you find the lowest interest rate available to you, which can save you money over the life of your loan.

If you’re unable to qualify for a loan with an affordable interest rate, it may be better to wait until you’ve had a chance to build your credit, save up for a down payment or secure a job. But if you need a car now, consider a less-expensive vehicle, and then budget well so that you can pay off your loan as quickly as possible.

About the author: Jennifer Brozic is a freelance financial services writer with a bachelor’s degree in journalism from the University of Maryland and a master’s degree in communication management from Towson University. She’s committed… Read more.