A Guide to Car Loans for Students
Being a student can present unique challenges to getting a car loan, but it’s not impossible to get financing—just follow Jerry’s expert tips.
Written by R.E. Fulton
Reviewed by Jessica Barrett
Table of Contents
- How do car loans work?
- What makes it hard to get a car loan as a student?
- How to get a student car loan
- Save on car insurance with Jerry
- FAQs
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Car loans for students pose special challenges, especially if you’ve got low credit or shaky income. But lots of lenders will approve loans for students—and getting a co-signer or building your credit can improve your odds.
Your first car is an important rite of passage, but qualifying for an auto loan as a college student can be difficult. Not only is the process unfamiliar for many people, but lenders are often less willing to lend to younger applicants with weaker credit, lower incomes, or higher debt-to-income ratios.
Don’t give up on your automotive dreams—it is possible to get a car loan as a student, and
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is here to walk you through the process. In this guide, we’ll look at the unique challenges—and advantages—of getting a car loan as a student. We'll even show you how to lower your insurance costs with our trusted quote comparison app
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How do car loans work?
A car loan is a type of
secured loan
that allows you to pay off the cost of a car over time. When you borrow money from a bank or other lender to buy a car, you agree to pay back the full amount, plus interest
, in monthly installments over a set loan term
. Secured means that your car acts as collateral for the debt. If you can’t keep up with payments, your lender can
repossess the car
. But if you’re able to follow your payment schedule, you’ll be the full legal owner of your vehicle by the end of the loan! Because lenders take things like
credit score
and debt-to-income (DTI) ratios into account when processing loan applications, it can be difficult to get a car loan as a student—but it’s not impossible! Advantages of car loans for students
Even though you may face unique challenges getting a car loan as a student, there are a few advantages to applying for auto loans while you’re still in school.
- Lenders may take a bigger-picture view of your situation, factoring things like your grades into their approval process.
- If you’re about to graduate, many manufacturers offer special rebates for recent or soon-to-be graduates to offset the cost of financing.
- If you’re lucky enough to have a low student debt burden, taking out an auto loan gives you an opportunity to build your credit.
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What makes it hard to get a car loan as a student?
When you apply for car loans as a student, you’re likely to be in a less favorable position than a lot of applicants. Here’s why:
- Credit score counts for a lot, and according toExperian, the average credit score for Gen Z is just 674. If you’ve got lower-than-average credit—or no credit history at all—lenders are less likely to approve your application, and your payments will be higher.
- It’s difficult to get a car loan without a job, so if you’re afull-time student with no income, you’re unlikely to get approved for any loan.
- If you don’t have significant savings, you won’t be able to put downa large down payment—which is one of the easiest ways to improve your approval odds.
In spite of these challenges, lots of lenders offer auto financing to college students, and you may even find that you can leverage your position as a student to your advantage. For instance, if you have a low credit score but a great GPA, your lender may see those good grades as an indicator that you can be responsible and approve you for a better loan than you’d get without your grades on your side.
Key Takeaway Having a sparse or negative credit history can hurt you when it comes to car loan applications—but many lenders design loans for people across the credit spectrum, including students.
MORE: How to save on car insurance with a good student discount
How to get a student car loan
Getting a car loan as a college student can be a challenge—but it’s not impossible. Here’s what you’ll need to do to get the best car loan for students.
Take stock of your credit and finances
Start by evaluating your finances, including your credit score. In general, experts will recommend a credit score of a credit score of 661 or higheryou’re likely to get a high interest rate—and if you’re below 500, it might be hard to get any kind of loan.
Calculate your debt-to-income (DTI) ratio by adding up all your monthly bills and dividing the total by your gross monthly income. Lenders will use your DTI ratio to estimate whether you’re able to afford a loan, and they’ll typically cap the ratio between 45% and 50%. In other words, if taking on a car loan would use up more than half of your available income, a lender’s likely to turn you down.
Consider a loan from a credit union
You can get a car loan from a bank, a credit union, a dealership, or an online lender. While a bank is most traditional, a credit union may give you a lower interest rate and better approval odds. Because credit unions are customer-owned, they tend to be more flexible with unique loan situations such as student car loans.
Get preapproved before you shop for cars
No matter what your finances look like, it’s always best to get preapproved for a loan before you head to the dealership. Why? Preapproval sets you up to shop smart—if you know exactly what amount you’ve been approved for, you can avoid going over that amount with unnecessary add-ons or a more expensive model than you need.
Consider a co-signer
If your income or credit puts you on shaky ground for car loan approval, a co-signer could be the answer to your worries. A co-signer on your loan agrees to take over payments if you’re unable to keep up with your debt, and it’s one of the best ways to get approved for a loan if your credit is below average.
Be prepared to wait for the best deal
When it comes to car loans for students, it’s important to be realistic—and focus on the future. If your finances or credit aren’t in great shape and you can’t find a co-signer, your best bet may be to wait. Taking time to build your credit or save up for a down payment might sting in the moment, but if it allows you to finance the car of your dreams at a better rate, the delay could pay off in the long run.
Save on car insurance with Jerry
No matter what your grades, credit history, or income look like, you can find next-level car insurance savings with
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FAQs
Can I get a car loan as a college student?
If you’ve got a steady income and a low debt-to-income ratio, you’ve got a decent chance of getting approved for a car loan as a college student, especially if you have good grades, a co-signer, or a strong credit score. However, if you don’t have any source of income, you’re not likely to get a car loan.
Do car dealerships look at student loans?
Your lender will take your debt-to-income (DTI) ratio, which includes your student loans, into account when considering your loan application. Your payment history also matters: if your student loans are in poor standing, you’re unlikely to get approved for an auto loan.
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