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Auto Loans

Car Loans for College Students

Updated May 11, 2023   |   6-min read

If you are in college and need a car, you are not alone. Every year, thousands of students seek to purchase their first automobiles, often without sufficient understanding of the process that can be unique for students. On the one hand, a student might face obstacles such as having no money, no income, and no credit history.

On the other hand, many auto-loan providers and car dealerships offer students special promotions to entice first-time buyers. Furthermore, some lucky students have doting parents who can help. It’s important for students to navigate these crossroad and take a logical approach to procuring their first vehicle.

Why Car Loans for College Students are Hard to Get Approved for

View it from the lender’s perspective. They approve car loan applicants when they feel comfortable that the loan will be repaid on time. College students must contend with some unique circumstances that make loan approval challenging. Many have no credit track record, little savings, spotty income, scant employment history.

In other words, students often lack proof of reliable creditworthiness. Even if a lender considered you a model of responsibility, you need money to make the payments. That’s the ultimate stumbling block when applying for student car loans.

Nevertheless, many lenders have student auto loan programs that help get to the final signature on an application.

What Are Lenders Looking for When They Approve Candidates?

To get a student auto loan you’ll need to be a full- or part-time student at an educational institution, including technical and trade schools. Recent graduates are often invited to apply as well. The ideal candidate has a good credit history, but many students fall short of this mark.

A credit history reports all credit-related activity, and if you’ve never used credit, you probably lack a history report. You have a better chance with lenders if you already have a credit card and you’ve used it wisely – no late payments, no large unpaid balances, avoiding minimum payments.

Credit bureaus use your credit history to formulate your credit score. The FICO system has scores from 300 to 850, and most car lenders typically want to see a score of at least 640. Lenders also want to see if you have access to steady income and a good academic record. For better or worse, a student with a good GPA is more likely to get a loan approval, and on better terms, than one who doesn’t, all other things being equal. It also helps if you engage in some form of responsible activity, like community service or tutoring the less fortunate.

How Can Prospective Borrowers Improve the Chances of Qualifying?

There are several steps any prospective borrower can take to facilitate a student car loan. The first is to flesh out and improve your credit history. If you haven’t done so yet, open a checking account, get a debit card and a credit card.

Many credit unions have programs called credit builder loans that can help you establish a credit score. With a credit builder loan, you borrow a modest amount which gets deposited into an account. When you pay off the loan, the account is released.

Your payment history is shared with the credit bureaus so you get credit for your payments. When done, you should have a decent credit score and are more likely to get access to your first credit card. You can maintain that score by never missing a card payment, avoiding overspending, and paying off the card balance each month.

Another way to establish and improve your credit score is to become an authorized user on another person’s credit card. The use of the card will be reported on your credit report and that of the owner. When the card is used responsibly, your credit score should climb.

Colleges also want to see indications of good character and the acceptance of responsibility. As mentioned, good grades help. More importantly, a steady job, even if only part-time, and a sizable down payment can make all the difference.

How Might College Students Improve Their Chances?

Here are a few tips if your trying to secure car loans for students:

  1. Get a student credit card: These are cards offered by your school in conjunction with a lender. They are secured, meaning you have to keep some money in the bank to collateralize the card.
  2. Get a co-signer: Your parents, friends, and relatives have helped you so much already, maybe one will be willing to co-sign for the auto loan. Having a co-signer really improves your chances for approval and could let you access some of the best auto loan rates.
  3. Supply references: Have your teachers, administrators, guidance counselors, and other grown-ups vouch for you in writing. Don’t be shy, supply about half a dozen glowing recommendations.
  4. Save up a sizable down payment: The more you put down, the less you need to borrow. Smaller loans are easier to approve. Don’t forget, the car acts as collateral. When you’ve already put down a nice chunk of money, you’ve over collateralized the loan which makes lenders happy.
  5. Earn money: It would be ideal if you could earn roughly $1,500 a month. You might be able to arrange a college work/study job. A steady income demonstrates your ability to make your car payments on time.
  6. ​Choose an affordable car: Save the new Lexus or Mercedes-Benz for your second car. Look for a quality used car, or if your heart is set on a new car, aim for an economical model with modest monthly payments. Many dealers offer special programs for students and recent graduates, so inquire about these.
  7. Do not use student loan money to pay for a car: Student loans usually have higher interest rates than car loans, plus you need your student loan money for, well, school.

Finally, research the right way to buy a car – auto dealers can be quite clever, but there are many online resources to help you get a good deal. Also, be on the lookout for used-car scams.