Car Loans for College Students: A How-To Guide

For most car buyers, having good credit and steady income are the keys to getting approved for a loan — though they are both things college students may naturally struggle with. Poor credit, no credit and low incomes are often part of the college experience.

Fortunately, many lenders offer car loans for students, and they may even lend to recent high school graduates, college grads and international students. Instead of qualifying by having great credit, you could qualify by showing the lender a job offer, applying with a cosigner or by having no major negative marks on your credit file.

Here’s what you need to know about getting a car loan as a college student.

Student car loan basics

Every car loan is different, but most have the same basic features in common. Car loans are paid back in monthly payments, also known as installments, over a period that usually ranges between two and six years.

If the interest rate is fixed (which most auto rates are), the monthly payment and the interest rate will stay the same for the full duration of the loan. This means that your payment will remain the same until you pay off the loan. If the rate is variable (which is less common), the interest rate and monthly payment could periodically change — and even increase — multiple times during your loan payoff.

If you fail to make the payments on time, the vehicle could be repossessed (taken away). That’s because most auto loans are collateral loans (also known as secured loans), and the car is the collateral.

Most lenders review your credit history and employment history, along with other debts, to determine if you can be approved. It can be difficult for a college student to meet the requirements, but it’s definitely not impossible — especially with the right lender.

Where to find car loans for students

There are many places you can shop for a loan, including banks, credit unions and online lenders. They may all offer something different, so it’s important to shop around and compare loan offers.

A great place to start is by searching for lenders who offer special discounts for students. That could include rebates or relationship discounts, the latter of which are discounts offered at a bank or credit union where you already do business. These usually entail a rate reduction on your loan.

If there’s a credit union affiliated with your school — such as the USC Credit Union, connected to the University of Southern California — check to see what rate programs are available. You may also want to see if the lender offers a First-Time Car Buyer program, like the ones offered by PremierOne Credit Union. In addition, check to see if they allow another person to apply with you — a co-applicant or cosigner — who could help your chances of being approved by agreeing to share responsibility for the loan.

Another option is to take out financing through a dealership — however, dealer loans may be more expensive, and a dealer’s loan can only be used for the vehicles sold by that dealer. Plus, special student discounts and rebates may not be available, though some dealers do offer discounts for first time buyers and students.

Dealers with car loan programs and benefits for students

Many auto manufacturers offer special incentives for students to purchase new and used cars. A variety of rebate programs are available to college and grad students — and even buyers who’ve graduated within the last year or two — when they purchase a new (unused) vehicle from the manufacturer or an affiliated dealership. Here are a few to consider:

• GM College Discount includes $500 cash for buyers, and some borrowers may qualify to defer their first payment for up to 90 days.
• Ford Drives U offers a $750 cash reward for purchases and $500 on leases for both Ford and Lincoln vehicles. High school seniors, high school grads and trade school students may also be eligible.
• Nissan USA College Grad Deals gives $500 cash back to soon-to-be grads and recent grads with proof that they’ll be employed within 90 days.
• Toyota College Grad Program offers a $500 rebate on buying or leasing for soon-to-be college graduates and recent grads, including those graduating from trade or vocational schools or nursing degree programs. Qualification requires proof of employment or a job offer, and co-applicants are allowed.

How to overcome the challenges of getting a car loan as a student

Unemployment or lack of income

Lenders often calculate what you can afford based on how much money you make. If your income is low, you may have trouble being approved. You could, however, demonstrate your ability to repay the loan by using one or more of the following strategies:

Consider a cosigner

A cosigner is someone who agrees to take full responsibility for loan payments, along with you. By offering to put their own credit and money on the line, they can help increase your chances of being approved.

Extend your repayment term

The longer your repayment time frame is, the lower your monthly payments will be. Just be aware that while this option may help you get approved, it will also result in being charged more fees and interest over time.

Consider steady part-time work

Taking on a part-time job can help in several ways. Having income can potentially help you save more for a down payment, cover your monthly payments and help you demonstrate that you have the ability to afford a loan. Some student auto loan programs also accept an official job offer as proof of future income.

High interest rates

Applicants with great credit and stable income are typically approved for the lowest rates and fees. Meanwhile, someone with poor credit or low income can be viewed as a risk and lenders may only approve you with high interest rates, making it much more expensive to repay the loan.

Here are a few ways to reduce your rates:

Get good grades 

Many lenders don’t disclose that a GPA requirement or good grades are alternative ways to qualify, so sharing your grades may not result in a discount. For good students, though, it may still be worth asking if your hard work in school could play a role in the loan decision.

Start building credit

The better your credit rating, the more likely you are to be approved for low rates. Unfortunately, it’s hard to build credit in a rush — and for someone with no credit history, it can take up to six months of history with a loan or credit card to start building scores.

But some lenders may relax their credit requirements on auto loans for college students, placing more of an emphasis on the lack of bad credit history. If you need further help establishing credit, consider having a family member add you to one of their open credit card accounts as an authorized user, or otherwise taking some time to build positive payment history with a secured credit card.

High auto loan payments

Just because you’re approved for a loan, that doesn’t mean it’s truly affordable. Lenders only review a snapshot of your finances to determine what you can afford. But they don’t account for additional costs you’ll take on, like gas, insurance, registration and maintenance. If you can’t find a loan with affordable payments, consider these options:

Increase your down payment

Making a bigger down payment means borrowing less money, which brings down your monthly payments — plus, it saves you money on interest and fees. You may want to borrow from a family member or a partner to help you put more money down, or, if necessary, take more time to save up cash before purchasing your car.

Find a cheaper car

Financing a less expensive car is another way to bring down your monthly payments. An older car that’s been well-maintained can be just as reliable in getting you to and from work and school. You could always upgrade in the future, if or when your financial situation changes.

Timing can also be important. Due to chip shortages and low inventory, some used cars may currently be more expensive than usual. Be sure to shop around and compare prices, and consider waiting to buy if the market is presenting too many challenges.

Look for discounts

Many lenders offer discounts, but you might have to shop around to find them. Here are some common discounts to look for:

• Autopay. You could get an interest rate discount if you set up automatic payments for your loan. Be sure to find out what the requirements are for this type of program as you may need to open an account at a particular bank to qualify.
• Current customer discounts. There may be a special incentive for you to borrow at a bank or credit union where you already have a “relationship,” such as  an open account.
• Membership discounts. Your lender may offer members a rate discount if you use their loan to purchase through a specific dealership or car buying site.
• Car buying services. Some credit unions offer a rate discount if you use their in-house car buying service. These services may be free, and can help you do things like find cars in your budget and schedule test-drives.

Alternatively, you could negotiate your own discount. One way to negotiate is by getting multiple preapproval offers and asking lenders to beat the rates you’ve been offered elsewhere.

Should you use your student loans to buy a car?

Most lenders have restrictions on how you can use their loans. But while student loans are meant to be used for educational purposes — which can include transportation expenses — they don’t always include stipulations about buying cars.

With that said, it’s not a good idea to use a student loan to purchase a car. You may be able to argue that the vehicle is necessary for getting to school, but federal loans are not meant to be used for vehicle purchases, and using a federal student loan for noneducational expenses can be considered fraud.

Plus, student loans typically take far longer to repay than auto loans. That means you could still be paying off the loan long after you’re done using the vehicle, or even after you take out another loan to buy your next car.

Five tips for international students looking for car loans

If biking, walking, carpooling or public transportation aren’t options, you may want to look into a car loan. Some lenders work with international students — however they may have unique requirements, so finding the right lender can take a bit of work.

Here are some things to look into:

1. Check residency requirements. Some auto lenders who work with international students accept a variety of visas, including F-1, OPT, H-1B, O-1, L-1 and TN, as well as green cards.
2. Consider the length of repayment. A long repayment term can help make monthly payments more affordable, but you won’t be approved for a loan if the payment time frame extends past the length of your legal stay in the U.S.
3. Look into a cosigner option. Having a cosigner can help you qualify, but some lenders don’t allow cosigners and others may require a cosigners to be permanent residents.
4. Understand the credit requirement. You may not need any credit history, or even an SSN, but the lender may still check your credit file to make sure there are no negative marks in your past, like bankruptcy or debts in collections.
5. Try getting prequalified. If you’re not sure you can get approved, try to get a rate quote based on your current situation so you’ll have an idea of whether or not you qualify.

You should also keep in mind that you’ll need a driver’s license and car insurance before you can purchase a vehicle.

In addition to credit unions and banks, some online auto lenders offer financing for international students — here are a few to check out:

• Kora: Loans are available for green card and visa holders. Undergrads with a GPA of 2.0-plus and grad students with a 3.0-plus can qualify. No credit score or cosigner is required and you don’t need an SSN.
• Stilt: Apply online for a loan with up to three year repayment. You don’t need a cosigner or credit history to qualify.
• Lendbuzz: You can qualify based on your education, employment history, savings and earning potential. You don’t need credit history, an SSN or a cosigner. Loan terms range from three to five years.