A Guide to First-Time Car Loans for College Students

It is difficult—but not impossible—for students to secure a first-time car loan, and a good credit score or cosigner can help.
Written by John Pickhaver
Reviewed by Jessica Barrett
background
First-time
car loans
for college students can be difficult to secure, but finding a cosigner, improving your credit score, and saving up a bigger down payment can greatly increase your chances. 
  • While not impossible, it can be difficult for a college student to get a first-time car loan.
  • High debt-to-income ratios, low savings balances, and lack of a job can be barriers.
  • There may be some special deals for college students, like rebates and discounts.
  • Getting a qualified cosigner may improve a college student’s chances of getting a loan.

How do car loans work?

A car loan is a secured loan that enables you to finance your vehicle over a certain period. 
Payment: When the bank or another loan provider lends you money to purchase a car, you agree to repay the entire sum of the loan amount. That’s in addition to interest payments which come in installments each month over a determined loan term, according to your annual percentage rate.
Collateral: Your car functions as collateral for your debt, which makes it secure. If you fail to pay each month, your loan provider can
repossess your vehicle
. But if you keep up with your payment plan, you will own your vehicle outright when the loan period concludes.
Eligibility: Since lenders consider factors like debt-to-income (DTI) ratios and your credit history when reviewing applications for loans, it is often challenging to secure a first-time loan for your car as a college student. That said, there are still ways to lock down a loan as a college student. 

Unique advantages of car loans for college students

While it may be more difficult to get a first-time car loan as a college student, you will have the following advantages:
  • Build credit: Getting a car loan affords you the chance to improve your credit score.
  • Special rebates: Companies offer enticing rebates for new college grads to lessen the price of financing.
  • Student discounts: Good grades could land you a more affordable auto loan.

What makes it hard to get a first-time car loan as a college student?

If you’re a college student looking for loan approval, you’ll have more hurdles to jump than the average loan applicant. Here are some of the most common challenges you could face:
  • Down payment: It’s difficult to apply a large down payment to the total cost of the car without a sizable savings account.
  • Lack of job: When you’re in school full time, it’s hard to get a job—and it’s hard to get a loan when you don’t have a job.
  • Short credit history: Gen Z’s average credit score is 674, according to
    Experian
    (a credit card bureau), and a low score or short history makes lenders less likely to approve your application.
However, despite the obstacles, many loan providers offer finance options to college students, and in some cases, you can use your student status to help your case!
For example, you can offset your lower credit score with a higher GPA because loan providers may consider high marks in the classroom to be indicative of your responsibility and offer you favorable terms as a result.
Key Takeaway: Having a low credit score or lack of credit history can harm your odds of securing a loan. However, lenders still create loan options with college students in mind. 

How to get a first-time loan as a college student

Securing an auto loan as a college student comes with challenges, but you can make it happen if you take these steps. 

Take stock of your credit and personal finances

Assess your financial situation before qualifying for loan rates—and start with your credit score. 
Credit score (661+): Financial professionals usually aim for a score of 661 or above for an auto loan, although it is not impossible to secure approval with a score that is lower. But if your credit report indicates a score that is significantly lower, the odds are your loan will include a higher rate of interest. If you have a bad credit score below 500, it will be difficult to get any borrower to give you a loan.
Debt-to-income ratio (max 45%): To determine your DTI, add up all your expenses for the month and divide that by your monthly gross income. Loan providers will utilize your DTI ratio to determine your chances of affording the loan, and the lenders will usually put a ceiling between 45% and 50%. 
In other words, if you have a low credit score and your car payment will account for more than half of your actual income, a loan provider is unlikely to approve you. 

Consider a loan from a credit union 

You can get an auto loan from a dealership, online lender, bank, or other financial institution While banks tend to be the most common choice, chances are good that a credit union will give you:
  • More competitive rates
  • Greater odds of being approved
Since credit unions are owned by the customers, they are typically more accommodating when it comes to special loan scenarios like a first-time loan application. 

Get pre-approved before you shop for cars

Whatever your financial situation is, you’re better off getting preapproval for an auto loan before showing up at the dealership. Instead of waiting for the dealership to tell you a price, you can tell them what you’re approved for and negotiate a lower monthly payment.

Consider a co-signer

Let’s face it, most college students don’t have high incomes. Working part-time or being unemployed while you focus on your studies can put you in a tough spot when it comes to getting approved for your first auto loan. 
A co-signer, like a parent or family member, could be the key to getting you behind the wheel of a new car. 
A co-signer on your loan enters an agreement to cover your loan payments if you fail to stay on track with the payment plan. This is also one of the most ideal ways to secure approval for an auto loan if you have a low credit score.

Be prepared to wait for the best deal

Bottom line: If your financial situation and credit score are not in a good place, and you can’t get someone to co-sign, your optimal option is to be patient. Wait it out until you can comfortably afford a car with a lower interest rate and save up for a bigger down payment.
Pro tip: If a student car loan is not in the cards for you, opt for used vehicles with special loan offers. It’s a lot easier for first-time car buyers to buy a used car, even with a limited credit history and lack of steady income. Plus, a bit of research can help you avoid higher interest rates.
MORE: How to save on car insurance with a good student discount
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FAQs

Yes. If you have a reliable income and a low debt-to-income ratio, your odds for getting approved for an auto loan as a college student are good. You can increase your odds if you excel in the classroom, get a co-signer, or have excellent credit.
Yes, indirectly. Lenders factor in your debt-to-income (DTI) ratio, which includes student loans. Your payment history carries weight in the approval process, so if your student loans are not in good standing, you will likely not be approved for a car loan.
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