Find a lender: In most cases, you’ll acquire a car loan from a bank, credit union, or financing company. You will fill out their loan application.

Get approved: As part of the application process, your prospective auto lender will consider the likelihood of your loan being repaid on time. They do this by checking your credit score as well as your current debt-to-income ratio.

Agree on terms: Once you’ve been approved, your lender will determine the terms of the loan including the loan amount. These terms will cover everything from the cost of your monthly payments to the repayment period and interest rate.

A large down payment could help you get a better deal. Watch out for high interest rates—but know that people with no credit history typically get higher interest rates than people with a good, long credit history.

Pay back the loan: You will pay back in installment, including the primary amount borrowed and the interest. Late payments are usually penalized.

It’s important to keep in mind that most car loans are considered secured loans. That means your car can be repossessed by your lender if you fall behind on your monthly payments.

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How do car loans work?

Car loan approval advantages for college students

Though college students can have a harder time than most when it comes to getting approved for auto financing, they have some advantages that other groups don’t:

Discounts: Some lenders offer rebates or discounts for college students who finance their car purchases through them.

GPA: You don’t have to rely on just

your credit score

when trying to get approved for a loan—many lenders will consider your GPA as well.

Credit building: If nothing else, keeping up with your loan payments is a great way to build your credit score for the next time you need to take out a loan.

There are also special car insurance discounts for students. Eligibility usually includes proof of enrollment and proof of a B average.

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The pros and cons of bringing a car to college

Why is it so hard for college students to get car loans?

Though it can feel as if lenders discriminate against college students, there are three major reasons for them being hesitant to loan large sums of money to those still in school:

Limited income: Because of their course load and schedule changing each semester, it can be difficult for students to find the time for a full-time job on the side.

Little or no savings: The employment challenges that college students face can leave them with no savings or not enough to make a

down payment

on a loan—especially if they have student loans.

Lackluster or no credit score: Many students are only just beginning to build their credit history and it will be several more years before they have a good credit score.

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A guide to low-income car loans

How to get a car loan as an unemployed college student

As an unemployed college student applicant, you’ll have a significantly more difficult time getting approved for a loan when compared to your fellow students. Rest assured, though, that you can still get the car loan you need, so long as you’re willing to go the extra mile with the loan providers.

Take stock of your credit and finances

Know your credit score: Your first step towards getting a car loan will be checking your credit score by pulling a credit report on yourself. You’ll want a score of 700 or more to have the easiest time getting approved for a loan, but you should still be able to find a lender with a score as low as 580.

Show your GPA: If you have a bad credit score (aka

below 580 or nonexistent

), you’ll need to submit a copy of your GPA when applying for a loan. Having a high GPA is another way to prove to potential lenders that you’re a responsible individual.

Proof of income: Finally, you’ll want to take a moment to consider your finances. If you’re unemployed, you’ll need to find alternative proof of income to have a chance at getting approved for a car loan.

Here are some options:

Veteran’s benefits

Investment dividends

Social security payments

Upcoming inheritance

Pending employment offer from a new job

Unfortunately, you cannot use unemployment benefits to get approved for student auto loans because it is only a temporary form of income. Part-time jobs and alimony may not help with qualifying either.

Prospective lenders are looking for long-term sources of income to be sure that you won’t find yourself unable to repay the student car loan in the upcoming months or years.

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Should you get a 72-month car loan?

See if you can get a loan from a credit union

Credit unions are often the superior choice for loan offers when compared with traditional banks or financing companies.

More flexible with their loan terms

More willing to give you a loan for a small amount

In other words, you might find better loan options from a credit union if you’re purchasing a used car for $10,000 or less.

Get a co-signer or co-borrower

If you’re unemployed, you’ll need a co-signer or co-borrower if you want to have a fair chance at getting an auto loan.

Qualify: Lenders will only approve loans for people with enough gross income to cover the monthly loan payments, and having a co-borrower will allow you to combine your income with the other person to meet your lender’s minimum income requirements.

Luckily, your co-signer or co-borrower doesn’t have to be family—friends and significant others can help you shoulder the burden of a car loan. Just be sure that you can make your loan payments, otherwise, your co-signer will be stuck repaying the full amount of your loan.

You could also ask a family member for a personal loan.

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What’s the difference between a guarantor and co-signer?

Get pre-approved before car shopping

Though it may feel like an extra step in an already involved process, pre-approval before you go to a dealership will be an immense amount of help in the long run.

Keep you from overspending on a car

Help you negotiate a better purchase price

MORE: How to get preapproved for a car loan

Settle in for a long wait

When buying a new vehicle, finding a loan with the best terms is just as important as finding the right car—especially in the case of unemployed college students. It could take a while to simply find a lender at all.

Because of that, don’t expect to find a car loan right away, and don’t jump at the first offer that comes your way. Waiting for a loan with reasonable terms will pay off in the long run, and may even give you the time you need to find a sustainable source of income.

Key Takeaway To better your odds of getting approved for a car loan, you’ll need an alternative source of income, a co-signer or co-borrower, and be willing to wait for the best loan terms.

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Car insurance for college students

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